Federal Reserve Chairman Powell recently stated in a speech at the New York Economic Club that although inflation in the United States has significantly decreased, it is still significantly higher than the Fed's long-term target of 2%, and the Fed will still retain the option of further interest rate hikes. The latest quarterly forecast released by the Federal Reserve earlier showed that interest rates will remain significantly higher than previously expected throughout 2024.
On September 20th, Federal Reserve Chairman Powell attended a press conference in Washington. (Xinhua News Agency, photographed by Aaron)
Since the start of this interest rate hike cycle in March last year, the Federal Reserve has raised the target range of the federal funds rate from near zero to between 5.25% and 5.5%. Although the Federal Reserve suspended interest rate hikes twice this year in June and September, the market expects the Fed to raise interest rates again before the end of the year. Economists from many countries believe that the high interest rate policy of the United States has led to the soaring yield of US treasury bond bonds and the strengthening of the US dollar, resulting in capital outflows, high inflation, currency devaluation, rising financing costs, and even the risk of debt default in many countries and regions, seriously dragging down the world economic recovery.
Xia Huasheng, a financial expert at the Vargas Foundation in Brazil, believes that the root cause of inflation in the United States is its malformed monetary policy. The continuous interest rate hikes by the Federal Reserve increase the risk of the United States falling into a vicious cycle of inflation, weaken the momentum of economic growth in the United States, and expose some financial institutions to the risk of deteriorating financial conditions and credit rating downgrades, thereby threatening the stability of the global financial system.
The impact of high US interest rates on the global economy is increasingly evident. Luis Fernandez, Senior Researcher at the Center for International Economic Research at the University of Havana, Cuba, said: "Since the Federal Reserve launched its strongest interest rate hike cycle in 40 years in March 2022, many countries around the world have experienced capital outflows, increased debt, high imported inflation, and threats to people's livelihoods and market stability
Economist Walid Jabala, a member of the Egyptian Association for Political Economy, Statistics, and Legislation, stated that the high interest rates in the United States have a siphon effect on global capital, leading to a shortage of dollars in many vulnerable developing countries and the brink of economic collapse. The continuous interest rate hikes by the United States have led to the withdrawal of over 20 billion US dollars of foreign investment from Egypt
With the tightening pace of the Federal Reserve's monetary policy, the US dollar continues to strengthen, some economies' currencies weaken, inflation intensifies, and the prospects for economic growth become even bleak. Currency depreciation has had a very negative impact on emerging economies and African countries, "said David Lute, Chief Economist of the Efficient Group, a South African asset management firm." Taking South Africa as an example, as the rand depreciates against the US dollar, domestic oil prices in South Africa continue to rise
This is the Federal Reserve Building captured on June 22, 2022 in Washington, USA. (Photographed by Xinhua News Agency reporter Liu Jie)
Yan Li, a senior lecturer at the Nanyang Business School of Nanyang Polytechnic University in Singapore, stated that the United States' radical and volatile monetary policy, coupled with the Ukrainian crisis and the Israeli-Palestinian conflict, has led to high inflation in most major economies around the world, soaring commodity prices, and an impact on global food supply. African countries such as Egypt and Brazil, as well as traditional food producing countries, have experienced a certain degree of food crisis.
To mitigate the adverse effects of the Federal Reserve's interest rate hike, many economies have had to follow suit, posing risks to their own economic growth. Many emerging markets and developing economies are facing a dual dilemma of "harder financing and more expensive debt repayment", increasing the risk of debt crisis.
Economist Mario Gintros, former director of the Export Promotion Department of the Argentine Ministry of Foreign Affairs, said that many Latin American countries carry foreign debts denominated in US dollars, and the Federal Reserve's interest rate hike means an increase in the cost of paying interest and using related financial services. Latin American countries have a history of falling into economic crises due to changes in US monetary policy. We should learn from history and reduce our dependence on US dollar capital
The Federal Reserve's monetary policy has also exacerbated the debt risk of the United States itself. According to data released by the US Treasury recently, the US federal government's fiscal deficit reached nearly $1.7 trillion in fiscal year 2023, an increase of 23% compared to the previous fiscal year. The US Federal Budget Accountability Committee has previously issued a statement stating that rising interest costs pose an increasing risk and are becoming increasingly difficult to ignore.
Many economists are concerned that if the Federal Reserve raises interest rates again before the end of the year, it will further affect international trade and the world economy.
The Director General of the Center for Economic and Legal Research, a think tank in Indonesia, Bima Yudistila, pointed out that further interest rate hikes by the United States will further disrupt world trade, as high interest rates will suppress the United States' import demand for goods and services, thereby affecting the export trade and economic growth of other countries.
The world economy is suffering from the negative impact of high inflation and significant tightening of monetary policy in the United States. The irresponsible monetary and fiscal policies of the United States are sending negative signals to the international market, "said Vasily Koltashov, director of the Russian New Society Research Institute. (Participating journalists: Chen Weihua, Zhao Yan, Wang Zhongyi, Shen Danlin, Yao Bing, Lin Chaohui, Liu Chuntao, Cai Shuya, Liu Kai, Wang Aona, Wang Feng, Xie Jiang, Zhang Yisheng, Yang Yunqi)