(Reuters) – The U.S. economy is mostly insulated from turmoil in UK markets, St. Louis Federal Reserve President James Bullard said on Thursday, a day after the Bank of England resumed its bond-buying in an emergency move to protect pension funds from partial collapse.
“We certainly saw some movement in U.S. asset prices in response to this, but I do think this is about UK policy,” Bullard said during a conference call with reporters. “I don’t see this really impinging on the U.S. inflation or real growth developments, so this is mostly about financial markets needing to price in the volatility you are seeing in the UK.”
The pound touched an all-time low of $1.0327 on Monday and British government bonds sold off at a ferocious pace in response to tax cuts proposed by the government of new British Prime Minister Liz Truss. There are widespread fears the government’s plan will further stoke inflation and put Britain’s fiscal and monetary policy at odds with each other.
The mixed signals added another dose of volatility to world financial markets already coping with the U.S. central bank’s interest rate increases moving faster and higher than anticipated, and many other countries racing to follow suit.
Bullard added that the Fed carefully monitors the impact of global developments on U.S. financial stability. Part of the issue was the way UK pension funds were structured, he said, calling on others around the world to take heed.
“It’s certainly true that some players in global financial markets didn’t realize they were taking risks with their strategies or they downplayed the risks … I’d encourage them all to review their strategies in the current situation.”
(Reporting by Lindsay Dunsmuir; Editing by Franklin Paul and Paul Simao)
