There is an increasing complexity of the monetary transmission mechanism (MTM) in countries, moving from sizeable external deficit to more sustainable path. The first point is a likely strengthening of the interest rate channel on new flows.
Indeed, fear of economic weakness and the associated deterioration in credit quality contributed to the adverse dynamics in credit markets. To counter this dynamic and adjust its policy to the evolving economic outlook, the FOMC reduced the target federal funds rate 50 basis points last week.