xi's moments
Home | From the Press

Interest rates decided by events, not just the Fed

China Daily | Updated: 2023-01-16 07:34

The Federal Reserve building is seen in Washington, US, Jan 26, 2022. [Photo/Agencies]

The latest inflation data released by the US Department of Labor on Thursday showed that the United States consumer price index rose 7.7 percent year-on-year in October 2022, the lowest since January 2022. With inflation down, the question for the Federal Reserve is whether to increase interest rates or not. There are various predictions of whether it will or won't.

But the Fed is expected to raise interest rates several times in 2023, and the range depends on which events will or will not happen this year.

The first is whether and to what extent the economic growth of the world, especially the US itself, will decline. In its Global Economic Prospects published in January, the World Bank sharply lowered its global GDP growth forecast to 1.7 percent for 2023, and warned of the risk of recession. It predicted that the GDP of the United States will grow by only 0.5 percent in 2023, which will be its weakest performance since the recession of 1970. In case the US economy faces a recession, the Fed might slow the pace or even suspend interest hikes.

The second is whether natural disasters or man-made incidents might cause a shortage of supplies. In its 2023 Global Risk Report, the World Economic Forum listed the rising cost of living, natural disasters and geopolitical conflicts as the top three global short-term risks.

If the shortage of energy and the food supply crisis continue, and the cost of living and debt servicing rise sharply, it is hard to imagine the US being able to exit from the interest rate hike cycle. Thus, interest rates will remain at a high level.

The third is the pandemic. After the early highly pathogenic strains, the relatively weak Omicron variant has become the main strain, but the virus continues to mutate. So there are still uncertainties that might restrain consumption, investment activities and market confidence. So although the rise and fall of the US benchmark interest might seem to be decided by the Federal Reserve, it actually depends on a series of events. The predictions of different institutions or people reflect nothing more than their expectations of how these events will unfold.

Only when countries join hands to address the risks and challenges will the world economy return to a benign state of low transaction costs.

21ST CENTURY BUSINESS HERALD

Global Edition
BACK TO THE TOP
Copyright 1995 - . All rights reserved. The content (including but not limited to text, photo, multimedia information, etc) published in this site belongs to China Daily Information Co (CDIC). Without written authorization from CDIC, such content shall not be republished or used in any form. Note: Browsers with 1024*768 or higher resolution are suggested for this site.
License for publishing multimedia online 0108263

Registration Number: 130349