America’s interest rate must not work against the world’s interest4 min read . Updated: 10 Nov 2022, 10:50 PM IST
A clear squeeze of other economies and dubious gains for the US should make the Fed rethink its tightening of monetary policy
Last month, this column had argued that monetary policy in the US, which has raised interest rates sharply over six months, is not likely to curb inflation but is surely risking a recession. Since then, consumer price inflation has persisted at 8.2% in end-September 2022, while the US Fed has announced a further hike of 0.75% last week, raising the benchmark rate to 3.75-4% in early- November 2022, on track for the projected 4.5% by end-2022. Two obvious questions arise. How long does the Fed think it will take to slow inflation down? How much can the Fed raise interest rates for consumer price inflation to reach the targeted level of 2% per annum? There is a less obvious question that is just as important, perhaps more worrisome. What does this mean in terms of unintended consequences for the world economy?