In recent months, the Federal Reserve has taken a lot of heat from asset managers for letting inflation spiral out of control and is now risking a recession with rapid rate hikes.

The chorus of complaints evolves around its perception in the market. “If the Fed doesn’t do its job, the market will,” wrote Bill Ackman, founder of Pershing Square Capital Management. The Fed “risks sliding further into a no-win interaction that is more familiar to developing countries that lack political credibility,” Mohamed El-Erian, chief economic adviser at Allianz SE, said in a column for Bloomberg Opinion.

The titans of the industry have reason to be annoyed. Data due Wednesday will likely point to consumer inflation hitting a new four-decade high, tying the Fed’s hands on another 75 basis point rate hike in July. In just four months, the spread between the 10-year Treasury note and the two-year note, traditionally a reliable barometer of recession risk, has reversed three times. The International Monetary Fund has cut its growth forecast for the US economy this year and next.

Meanwhile, some of the tried-and-true methods of managing portfolio risk, such as hedging exposure to US equities with long-term Treasuries, no longer work. Not only have the S&P 500 and Treasuries both generated negative returns this year, but the correlation between the two asset classes has turned strongly positive.

No doubt, US markets have been weird lately, but it’s all relative. Judging by global fund flows, it’s hard to say that investors have lost faith in the Fed.

Rather, developing economies have borne the brunt of the blow. Investors have withdrawn more than $50 billion from emerging market bond funds this year, the heaviest in at least 17 years. Redemption into US bond funds, by comparison, remained fairly subdued; sovereign debt has even seen inflows, despite a 7.5% loss since the start of the year.

This is because the Fed is fortunate to have a currency that is heading in the right direction. A strong dollar, which is needed to keep domestic inflation under control, keeps wallet money from leaking out of US assets.

Emerging markets, on the other hand, have no such luxury. Central bankers there are trapped in a singular focus on inflation, reacting more aggressively than expected and still failing to keep pace with the dollar. The weakness of their currencies, in turn, is fueling increases in the domestic prices of everyday goods, from wheat to natural gas.

For example, Hungary surprised with a massive rate hike of 185 basis points to 7.75% at the end of June, the biggest rate move since 2008. But the forint’s boost against the dollar and euro quickly evaporated. This year, the Hungarian currency has fallen by around 20% against the dollar, despite the increase in its key rates by 5.35 percentage points.

Granted, the Fed is also focused on inflation right now. But at least it’s not in a game of cat and mouse with another major central bank. He can try to find a balance between inflation and economic growth.

U.S. market participants are in a position to consider when the Fed might start cutting rates again – the second quarter of 2023 if futures markets are to be believed. This thinking exercise is not even on the table for most developing countries today. The markets have not totally lost confidence in the Fed.

More from this writer and others on Bloomberg Opinion:

• The Fed is pushed into the camp of developing economies: Mohamed El-Erian

• Jobs report gives Powell a bit more lead: Jonathan Levin

• There’s good news for the economy, if you watch: John Authers

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. A former investment banker, she was a markets reporter for Barron’s. She holds the CFA charter.

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