U.S. Fed takes global effects of central bank rate hike seriously: Fed official

U.S. Federal Reserve takes the potential international implications of the central bank's monetary policies seriously, as the international effects of Fed polices can spill back onto the U.S. economy and financial markets, said a top Fed official on Monday.

Acknowledging Fed's interest rate hike can pose challenges for emerging market economies, the strong U.S. growth, improved emerging markets fundamentals, and effective Fed communications can limit the stresses caused by the tightening, William Dudley, president of the Federal Reserve Bank of New York, said in a speech at an event in New York.

The International Monetary Fund warned in its recent World Economic Outlook that a strong U.S. dollar and the normalization of U.S. monetary policy would pose potential risks to the global financial markets and even the global economy, as they could weigh on companies' dollar-denominated debt and lead to a reversal in capital flows to the emerging markets.

However, the emerging economies are better quipped today to handle the challenge than they were in the past, said Dudley, also vice-chairman of the Federal Open Market Committee, the Fed's policy arm.

History showed a strong dollar and Fed's interest rate hike had triggered two major crises in emerging economies, one is the Latin American debt crisis in early 1980s and the other is the Asian financial crisis in 1997.

In the speech, Dudley downplayed the weak U.S. economic performance in the first quarter and expected the growth prospects over the remainder of 2015 will improve, with supports from rising household spending, and improved fiscal consolidation.

He iterated that the economic performance will determine when the Fed finally raises interest rate but added that he hoped the data support a decision to tighten policy later this year. Dudley also repeated that the pace of tightening will depend on how financial markets react. Endite