Aggressive interest rate hike by the Federal Reserve triggered a global ＂interest rate hike＂ (global hotspot)

　　Recently, as the Federal Reserve announced a 75 basis point interest rate hike and raised the target range of the federal funds interest rate to 3% to 3.25%, a new round of "interest rate hike" has been set off around the world. Many central banks around the world have announced interest rate hikes for multiple reasons, such as curbing inflation and stabilizing the exchange rate of local currencies.

　　In this regard, the World Bank warned that the global "interest rate hike" will push the global economy into recession, especially developing countries will face a series of financial crisis risks and "lasting damage".

　　"The world is caught in a’ rate hike competition’"

　　On September 21st, the Federal Reserve ended its two-day monetary policy meeting and announced that it would raise the target range of the federal funds rate by 75 basis points to between 3% and 3.25%. This is the third time in a row that the Fed has raised interest rates by 75 basis points this year.

　　When the "boots" landed, other central banks responded. On September 22nd, the Swiss National Bank raised interest rates by 75 basis points, ending the negative interest rate policy that lasted for 8 years. On the same day, the Bank of England and the Norwegian central bank also announced a 50 basis point interest rate hike. After announcing the second rate hike this year in early September, European Central Bank President Lagarde said on September 26th that the European Central Bank would continue to raise interest rates to cope with the rising inflation level.

　　On September 28th, local time, the Monetary Policy Committee of the Bank of Thailand announced that it would raise interest rates by 25 basis points, from the original annual benchmark interest rate of 0.75% to 1%, which will take effect from now on. The day before, the Monetary Committee of the National Bank of Hungary (the central bank) announced that it would raise interest rates by 125 basis points, raising the benchmark interest rate from 11.75% to 13%, the highest since 2000.

　　In addition, the central banks of South Africa, the Philippines, Indonesia, Vietnam and other countries have also recently announced interest rate hikes. In the words of Ethan Harris, chief economist of Bank of America, the world is caught in a "interest rate race".

　　This is not the first time this year that there has been a global "interest rate hike". In March this year, in response to inflation, the Federal Reserve started the interest rate hike cycle, and so far it has raised interest rates by 300 basis points, the largest intensive interest rate hike since 1981.

　　Since the Federal Reserve and the US dollar dominate the global currency market, most countries will take the Federal Reserve’s monetary policy as an important consideration when formulating their own monetary policies. The Fed’s aggressive interest rate hike and the rapid shift in monetary policy have led many countries to follow the Fed’s interest rate hike in order to maintain macroeconomic stability.

　　Bloomberg statistics show that since the beginning of this year, the central banks of about 90 economies have raised interest rates, and half of them have raised interest rates by at least 75 basis points in a single time, setting a record for the most extensive tightening of global monetary policy in 15 years.

　　"Compared with before, the new round of global’ interest rate hike’ came more violently, because the Fed continued to raise interest rates aggressively, with a fast pace and a large range, which triggered violent turmoil in the international financial market." Bian Yongzu, a visiting scholar at Yale University in the United States, said in an interview with this reporter.

　　The "siphon effect" of the dollar appears

　　"One of the reasons why many central banks have intensively announced interest rate hikes is to deal with inflation. For example, the consumer price index (CPI) in the UK rose by 9.9% year-on-year in August, only slightly down from 10.1% in July. Energy and food prices in the euro zone also continued to soar, and the inflation rate in August reached an annual rate of 9.1%, a record high. " Feng Weijiang, Secretary-General of the National Global Strategic Think Tank of China Academy of Social Sciences, said in an interview with this reporter that in addition, under the background that the United States took the lead in raising interest rates at a high frequency, other countries also considered passively raising interest rates to cope with the risk of capital outflow.

　　Krishna Guha, head of central bank strategy of Everco International Strategy and Investment Group in the United States, recently pointed out that the United States is the decisive factor driving the global "interest rate hike". "The Federal Reserve is setting the pace of interest rate hike and passing the pressure to other central banks through the foreign exchange market".

　　Since the Fed started the interest rate hike cycle this year, the exchange rate of the US dollar against other currencies has continued to rise, and it accelerated around the Fed’s interest rate hike node in September. The Wall Street Journal reported that this year, the US dollar index of the intercontinental exchange, which measures the exchange rate between the United States and major trading currencies, has risen by 14%, which is the strongest year for the US dollar since the index was launched in 1985. The exchange rates of the euro, the yen and the pound against the US dollar have all fallen to decades lows, and emerging market currencies have also been hit hard.

　　"The Fed raised interest rates aggressively, and the spread between the US dollar and other currencies expanded rapidly. Under this circumstance, the accelerated depreciation of other currencies led to the rapid return of global capital to the United States, which forced other central banks to raise interest rates urgently. " Yan Yongzu said.

　　In addition, Feng Weijiang pointed out that the US interest rate hike, the appreciation of the US dollar and the rising prices of goods imported from the US by other countries may aggravate domestic inflation. In addition, the tight monetary policy in the United States may compress external demand, and countries with the United States as their main market may face the pressure of weakening export momentum.

　　"Because the US dollar still dominates international payment and settlement, global foreign exchange transactions and foreign exchange reserves, the Fed’s monetary policy cycle has become the vane of the global monetary policy cycle. At present, as the Federal Reserve continues to raise interest rates, the siphon effect of the US dollar is emerging globally, and the exchange rate’ scissors difference’ brought by the strength of the US dollar is’ harvesting’ global wealth through inflation. " Zhang Monan, deputy director and researcher of the US-Europe Research Department of China International Economic Exchange Center, pointed out to this newspaper that the continuous interest rate hike by the Federal Reserve has made the US dollar enter a self-strengthening process, and the cumulative effect of the rapid appreciation of the US dollar has gradually become prominent. In this context, many countries are facing the dual pressures of high inflation and a sharp slowdown in economic growth, and fall into stagflation. Many central banks have followed the Federal Reserve in raising interest rates sharply. Apart from controlling inflation, the main reason is to cope with the devaluation of the local currency and the violent turmoil in the foreign exchange market and hedge the disturbance caused by the strength of the US dollar to the global financial market.

　　The risk of global recession increases

　　"The latest interest rate’ bitmap’ released by the Federal Reserve shows that the median forecast of the federal funds rate by Fed officials at the end of 2022 is 4.4%, which is significantly higher than the forecast of 3.4% in June. This means that the Fed may raise interest rates by 125 basis points this year. From a technical point of view, the Fed’s decision to raise interest rates is to control its high domestic prices. However, the international monetary status of the US dollar determines that the US dollar policy does not consider negative spillover effects, and it has the external effect of weaponizing or harvesting the currency. " Feng Weijiang said.

　　At present, the aggressive interest rate hike by the Federal Reserve has aggravated the market’s concerns about the global economic prospects. The New York Times pointed out that the Fed’s interest rate hike has caused inflation to rise rapidly in many countries, and the debt scale has been expanding, which has increased the risk of a serious global economic recession.

　　According to the research report released by the World Bank in mid-September, global central banks are raising interest rates at a synchronous rate that has not been seen in the past 50 years, and this trend may continue until next year, causing the world economy to fall into recession.

　　"At present, the world economy is growing slowly, and inflation debts in many countries are both high. In this case, a sharp interest rate hike will not only increase the financing cost, increase the burden on enterprises and people, restrain production and consumption, and lead to a decline in economic growth, but also make the indebted government face heavier financial pressure. At the same time, raising interest rates has had a great impact on the capital market. Next year, the economies of the United States and Europe may accelerate into recession, and it is not excluded that some countries with fragile economies may have economic or financial crises. " Yan Yongzu said.

　　Zhang Monan pointed out that at present, the world is in a downturn stage of a sharp slowdown in demand, and the Federal Reserve has entered a rate hike cycle, which has forced many countries to adopt tight monetary policies to further suppress the already fragile demand. "The damage caused by a strong dollar to the world economy has just begun, and the negative effects will continue to appear in the next few years."

　　The World Bank report points out that the situation of central banks fighting inflation today is worrying. Since the Great Depression in 1970, the global economic development is in the most serious deceleration period. The decline in global consumer confidence has been far ahead of several global economic recessions. In this case, if the global economy is slightly hit in the coming year, it may lead to economic recession.

　　"It is worth noting that there is a temperature difference between the current strong dollar and the fragile economic situation in the United States. The strength of the US dollar is not supported by its healthy domestic economic growth, but the monetary policy of the Federal Reserve triggered the turmoil in the world financial market, making the US dollar a strong safe-haven asset. The fragility of the American economy and the structural and stubborn domestic inflation determine that it is impossible for the US dollar to remain strong for a long time. Once the Fed’s monetary policy is adjusted later, the strong bubble of the US dollar will be punctured because the domestic economy is unable to support it, and the US dollar may fall sharply. The resulting financial market turmoil may have a more serious spillover effect. " Zhang Monan said.

　　Our reporter Yan Yu

Source: People’s Daily Overseas Edition