The global economy hangs on the announcement of a hike in the Fed's key rates
A sign indicating Wall Street in front of the New York Stock Exchange (illustrative image).
AP - Mark Lennihan
Text by: RFI Follow
1 min
Investors' eyes are on the Fed on Wednesday.
The US Federal Reserve should announce a third increase in these key rates, around 0.50% or more according to analysts.
The prospect of a more aggressive rate hike is making markets nervous at the moment, fearing a recession in the US economy next year.
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High rates are synonymous with an increase in the cost of credit;
households will take on less debt and thus reduce their consumption.
Ditto for companies that will have to reduce their investments.
After rising by a quarter of a percentage point in March, then by half a point in May, a further increase is expected.
It could be half a point (which corresponds to 50 basis points), or even three-quarters of a point (75 basis points), which would be a first since 1994.
At the same time, we are seeing a general increase in the borrowing rates of States, this is the case of the United States but also of Europe.
The 10-year interest rates on French and German debt have thus returned to their highest levels since 2014.
Fear of a recession
This cocktail only fuels investors' concerns about a possible recession in the US economy but also worldwide, because central banks everywhere are raising their key rates.
Added to this are the new containment measures in Shanghai and Beijing which raise new fears about the growth of the world's second largest economy.
Central banks are now faced with a dilemma: containing inflation without jeopardizing growth, at the risk of settling into a period of stagflation, where high inflation and weak growth coexist.
Emerging countries, which sometimes even often have higher borrowing rates, of course you have a higher debt burden.
These countries may face downside risks as well.
Alexandre Baradez, head of market analysis at IG France
Agnieszka Kumor
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Economy
United States
finance