The expected normalization of U.S. policy interest rates entails some risks of disruption to capital flows to emerging and developing countries. However, a strengthening recovery in the United States and continued policy easing by other major central banks should help mitigate these effects.
After weathering relatively well the Great Recession, labor markets in developing countries face macroeconomic and structural policy challenges that make them vulnerable to a global slowdown.
The dollar strengthened against the yen on Wednesday, supported by higher U.S. Treasury yields and widespread expectation that the Fed may signal it is on track for its first rate hike since 2006 by year’s end. The yield on the benchmark 10-year Treasury note rose 5 basis points to 2.38 percent, as higher U.S. bond yields tend to support the dollar by raising return on dollar-denominated securities. The greenback was up 0.7 percent to 124.27 yen, while it was little changed versus the euro at $1.1243.
Relative to the advanced economies, the Great Recession had a mild impact on the labor markets of developing countries. The resilience of developing-country labor markets reflects, in large part, stronger output growth during and after the crisis. Moderating growth in several large developing countries has not yet had a large labor market impact, but some signs of weakness are emerging.