# Fed sneezes, emerging markets stay warm

> Emerging markets resist Fed rate hikes despite US monetary tightening.
- Title: Fed sneezes, emerging markets stay warm · The Economic Times
- Summary: Emerging markets resist Fed rate hikes despite US monetary tightening. Emerging markets maintain economic resilience as US Federal Reserve hikes interest…
- Keywords: federal reserve, emerging markets, interest rates, central banks, us debt dynamics, em bond yields, investors, economic growth, money, business, Fed, sneezes
- Source: The Economic Times — https://economictimes.indiatimes.com/markets/us-stocks/news/fed-sneezes-but-emerging-markets-arent-catching-a-cold-yet-mcgeever/articleshow/135071362.cms
- Author: Reuters
- Published: 2026-10-20T13:47:00+00:00
- Read time: 1 min
- Topics: federal reserve, emerging markets, interest rates, central banks, us debt dynamics, em bond yields, investors, economic growth, money, business
## Fed starts hiking rates
The Federal Reserve has begun raising interest rates while emerging markets show resilience against monetary tightening.

> The US has sneezed, but EM isn't catching the proverbial cold.
## Historical pattern shifts
Historically, when the Fed tightens policy, emerging economies have followed due to currency concerns and debt dynamics.

> This has given rise to another market cliche: the Fed is central banker to the world.
## Emerging markets' current strength
Emerging markets show surprisingly resilient economic growth and stronger fiscal fundamentals this year.

> That could allow them to start cutting rates in the next year, or at least not follow the Fed in lockstep as it tightens.
## High bond yields in EM
The weighted average 10-year emerging bond yield reached nearly 6.45% at the end of September, its highest in five years.

> Average inflation-adjusted EM yields are also historically high, close to 3%.
## Rate buffer for EM
Lofty policy rates have created a real rate buffer for emerging market central banks.

> Bank of America strategists say EM rates at the front end of the curve have 'materially' overshot to such an extent that implied policy rates next year will be in restrictive territory in all major emerging economies except China.
## Investor sentiment shifts
33% of investors favor emerging market stocks compared to 26% who prefer developed market equities.

> Bank of America's latest fund manager survey shows a net 34% of those polled are overweight in EM stocks, down slightly from 38% in September.
## EM debt dynamics
The IMF projects emerging markets' debt-to-GDP ratio this year at 77.2%, rising to 86.2% in five years.

> While the debt-to-GDP risk threshold in EM countries is lower because these economies are typically less resilient, few alarm bells are being rung.
## Diverse EM responses
Some EM countries are cutting rates, others raising them, and some are keeping options open.

> Others may prefer to keep their options open.
## Indonesia's exception
Indonesia's economic distress highlights idiosyncratic EM challenges but doesn't affect the broader emerging market narrative.

> Removing Indonesia could actually make EM equity indices more attractive to investors.
## Fed's reduced influence
The Federal Reserve no longer dictates emerging market monetary policy as it did previously.

> The Fed doesn't appear to be calling the EM tune like it used to, and if the record attendance at Barclays' EM Conference in Bangkok last week is any guide, that's music to investors' ears.
## Key takeaway

Emerging markets maintain economic resilience as US Federal Reserve hikes interest rates, with central banks retaining flexibility to avoid following US monetary policy tightening.