Higher U.S. rates would undermine global recovery: The Guardian

(Xinhua) 08:41, July 19, 2022

LONDON, July 18 (Xinhua) -- As the U.S. Federal Reserve was expected to raise its interest rates further later in July, it would "wreck any chance of a global recovery," the Guardian has noted.

The rise, which could reach a full percentage point, would bring "terrible impact on Britain and countries across the world of America's selfish disregard," noted Phillip Inman, an economics writer for the Guardian, in a Saturday article.

The U.S. central bank raised its target federal funds rate by a quarter percentage point from near zero in March, beginning its tightening cycle to curb surging inflation.

In May, the Fed increased the rate by half a percentage point. It hiked the rate by three-quarters of a percentage point, or 75 basis points in June, the most aggressive hike since 1994.

Higher interest rates in the United States make it a more attractive place for investors to store their money, and to take full advantage, investors must sell their own currency and buy dollars, sending the price of dollars rocketing higher, Inman said.

As the U.S. dollar increased in value against other currencies, goods and raw material priced in dollars, including oil, are much more expensive, pushing up import prices as well as causing higher inflation, according to the article.

Borrowing in dollars also becomes more expensive, and as the Fed raises interest rates, dollar-denominated loans become an unsustainable burden to states around the globe, the article continued.

"Emerging markets and many developing-world countries will be broke when these extra costs are combined with a loss of tourism from the COVID pandemic," Inman said.

Noting that there is no sign that the United States will change course, Inman added, "The Fed knows inflation is a problem born of insufficient supply that only governments can tackle. But that doesn't look like stopping it from pushing the U.S. economy, and everyone else's, into recession." 

(Web editor: Peng Yukai, Du Mingming)


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