The Federal Reserve’s continuous aggressive interest rate hikes have disrupted the order of the global financial market and brought a huge impact on emerging market countries and developing countries, especially the least developed countries.
The negative spillover effect of US economic policies on the global economy continues to expand, further weakening the prospects for world economic recovery.
According to a recent report by the International Monetary Fund, driven by factors such as the tightening of US monetary policy and the energy crisis, the strengthening of the US dollar is posing severe challenges to many emerging market countries.
The dollar has gained 8.4% against a basket of currencies so far in 2022, its biggest annual gain in seven years.
The Federal Reserve raised interest rates sharply, which led to a sharp depreciation of the currencies of some economies, and many countries were forced to follow the pace of U.S. interest rate hikes. Uncertainties in the global economy continued to increase.
The international community calls on the United States to adopt responsible economic and financial policies and play a constructive role in maintaining international financial stability and promoting world economic recovery.
"Very likely to derail the U.S. economy, triggering a mild or even severe recession"
A few days ago, the Federal Reserve held its last monetary policy meeting in 2022 and announced that it would raise the target range of the federal funds rate by 50 basis points to between 4.25% and 4.5%, reaching the highest level since December 2007.
This is the seventh consecutive rate hike by the Fed since March last year.
The main purpose of the Federal Reserve's continued aggressive interest rate hikes is to deal with persistently high domestic inflation.
However, after several rounds of sharp interest rate hikes, U.S. inflation remains high.
According to the US Department of Labor, although the US inflation rate has narrowed in December 2022, it will still increase by 6.5% year-on-year.
U.S. President Joe Biden admitted: "Inflation may not return to normal levels until the end of 2023."
Many analysts in the United States are worried that a sharp increase in interest rates will not only fail to bring about a "soft landing" for the U.S. economy, but will instead increase the risk of recession.
Steve Hanke, a professor of applied economics at Johns Hopkins University, said in an interview with the US media recently that if the Fed continues to implement tightening policies, the possibility of the US economy falling into recession in 2023 is as high as 80% or even higher.
The latest forecast from the Bank of America shows that the U.S. economy may begin to decline in the first quarter of this year, and the annual economic growth rate may be negative.
Under the dual pressure of high inflation and high interest rates, the US economic activity is sluggish.
The National Association of Realtors recently released data showing that in November 2022, the sales of existing homes in the United States fell by 7.7% month-on-month, falling for 10 consecutive months, and decreased by 35.4% compared with the same period last year.
According to data released by the U.S. Department of Labor, the number of unemployed Americans in November 2022 will be approximately 6 million.
Bank of America Global Research believes that the U.S. unemployment rate will be higher than the Fed's median forecast.
The increase in borrowing costs brought about by interest rate hikes has brought multiple blows to the lives of ordinary people.
Experts believe that the austerity policy will make many American families, especially low- and middle-income families, have to face the double dilemma of falling income and rising borrowing costs.
Problems such as widening income gap, social division and political polarization in the United States will also intensify accordingly.
JPMorgan Chase & Co chief executive Jamie Dimon said international energy prices would continue to rise as the dollar strengthened, which "could very well derail the U.S. economy and trigger a mild to severe recession."
"The United States will pass on its own difficulties and possible crises to the world"
The Fed’s aggressive interest rate hikes have triggered a series of spillover effects, deeply affecting the world economy.
In order to ensure macroeconomic stability, many countries were forced to raise interest rates accordingly.
The New York Times article stated that the Fed's interest rate hike has caused inflation to rise rapidly in many countries, and the scale of debt has continued to expand, increasing the risk of a severe recession in the global economy.
Bank of America chief economist Ethan Harris said, "the world is caught in a 'race to raise interest rates'".
The World Bank has warned that the global "tide of interest rate hikes" will push the world economy into recession, especially developing countries will face a series of financial crisis risks and "lasting damage".
Philip Rousberg, a policy analyst at the European Policy Center, believes that the Fed's rate hike could lead to a further fall in the euro against the dollar.
The widening interest rate differential between the US and Europe will continue to push investors to sell euro assets and increase their holdings of dollar assets, which in turn will lead to further depreciation of the euro.
Hidetoshi Tashiro, chief economist at Sigma Capital Corporation of Japan, said that the rate hike by the Federal Reserve directly led to the depreciation of currencies around the world and the rise in prices.
"By raising interest rates, the United States is passing on its own difficulties and possible crises to the world."
"Aggressive interest rate hikes in the United States have led to high imported inflation in emerging economies, which has dragged down economic growth prospects." Dendi Ramdani, an economist at Bank Mandiri in Indonesia, said that many emerging economies, including Indonesia, had to sacrifice At the expense of its own consumption and investment growth, it is forced to follow the US interest rate hike.
As the interest rate of the US dollar rises, a large amount of capital flows back to the United States, and capital outflows from emerging market countries and developing countries intensify, and the risk of falling into a debt trap continues to rise.
According to data released by JP Morgan Chase, in the first seven months of 2022, 50 billion US dollars of funds have been withdrawn from the bond markets of emerging market countries.
According to a report released by the World Bank, rising interest rates and slowing global economic growth may plunge some countries into debt crises. At present, about 60% of the least developed countries are at high risk of debt crises or are already in crisis.
Stern, director of emerging market research at Oxford Economics, said that some emerging market countries are currently at the critical point of economic crisis, "if the dollar appreciates further, it will be the last straw that breaks the camel's back."
"The United States should adopt responsible economic and financial policies to maintain international financial stability"
Analysts believe that the United States has obtained "excessive privileges" from the international status of the US dollar, and has huge influence and regulatory power on the global economy and financial system.
Yu Chunhai, deputy dean of the School of Economics at Renmin University of China, said that in the context of the current world economic slowdown, major developed economies such as the United States should fully evaluate the negative spillovers of their policy actions, adopt responsible economic policies, and promote multilateral cooperation. Fulfill its due international obligations and responsibilities, instead of caring only for its own selfishness and beggar-thy-neighbor.
An article published on the website of the US "Dialogue" magazine warned that the sharp increase in interest rates by the Federal Reserve will force other countries to face inflationary pressure and currency depreciation pressure, pushing up the risk of a global economic recession, and the risks faced by other countries will surely backfire on the United States itself.
The US "Wall Street Journal" commented: "The appreciation of the US dollar has brought troubles to the global economy. The US should adopt responsible economic and financial policies, maintain international financial stability, and play a constructive role in promoting the recovery of the world economy."
Gabriel Klaus, an analyst at the Institute of Race Relations, a South African think tank, said that although U.S. Treasury Secretary Yellen admitted that monetary tightening in developed countries may have spillover effects, the United States has not taken any responsible measures so far. The United States only considers its own self-interest whether to raise interest rates or lower interest rates.”
"The current world economic growth prospects are facing multiple shocks. The United States has not shown its due responsibility as a major country, but has used the dollar hegemony to export inflation to the outside world. Its intensive interest rate hikes have caused turmoil in the international market. The economic structure is relatively fragile and deeply dependent on dollar loans and foreign trade. Developing countries in the U.S. are likely to suffer more severe shocks," said Charles Onunaiju, a Nigerian international relations expert.
He believes that when the United States launches relevant decisions, it should fully consider the possible chain reactions, especially the impact on developing countries including African countries.
At the same time, developing countries should promote more complete and effective bilateral and multilateral financial mechanisms and trade arrangements, and strive to reduce the impact of the Fed's monetary policy on themselves.