International aspects of Federal Reserve asset purchases Although the monetary accommodation we are providing is playing a critical role in supporting the U.S. economy, concerns have been raised about the spillover effects of our policies on our trading partners. In particular, some critics have argued that the Fed’s asset purchases, and accommodative monetary policy more generally, encourage capital flows to emerging market economies.
These capital flows are said to cause undesirable currency appreciation, too much liquidity leading to asset bubbles or inflation, or economic disruptions as capital inflows quickly give way to outflows. I am sympathetic to the challenges faced by many economies in a world of volatile international capital flows.