Following the news that the US Federal Reserve approved the largest rate hike since 1994 to combat the 40-year high inflation;Bindi Patel, Economic Research Analyst at GlobalData, a leading data and analytics company, offers her view:
“With inflation levels set to reach a 40-year high in May 2022, the US Federal Reserve’s announced interest rate hike to be just the first of several in the coming months as the US aims to cool off inflation. Consequently, the US economy is likely to experience high interest rates for mortgages, credit cards, student debt, and car loans. Moreover, businesses loans will also get costly as borrowing costs goes up. In response to the news, GlobalData has revised its forecast for the US’s real GDP growth rate down to 2.7% in June 2022 from 3.6% in February 2022.
“Major emerging economies such as India, Brazil, and South Korea are likely to experience capital outflows as the bond yields in the US market will continue to accelerate—thereby offering attractive returns and a safer investment option. With the US dollar strengthening, such emerging economies are likely to experience a depreciation in their local currencies.
“The subsequent rate hikes by the Fed could prove to slow down US economic growth, and have an even greater impact on global growth, considering that the Russia-Ukraine war has caused inflation to soar and triggered a global food crisis. With the high levels of interest rates in the US could eventually lead to an overall decrease in consumer demand, stifle economic growth, and businesses imposing hiring freeze.
“Since January 2022, Brazil has increased its interest rate by 350 basis points (bps), while India rose theirs by 90bps, the UAE by 73bps, and the Philippines by 25bps since January 2022. GlobalData expects that the Central Banks of major economies will maintain their hawkish stance and more rate hikes are likely until the inflationary pressure reduces.”
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