Before the midterm elections, the Fed raised interest rates again, US media: The United States is making the world uncomfortable

Source: Global Times

On the 3rd Beijing time, the Federal Reserve again announced a 75 basis point interest rate hike. According to the Associated Press, this is the sixth time the Fed has raised interest rates this year and the fourth consecutive 75 basis point rate hike. The United States claims that the original intention of continuous interest rate hikes is to control inflation, but now the US economy has reached the brink of recession, and the inflation figure seems to have peaked since it reached about 8% and has not continued to grow, so more and more opposition voices demand that the Fed stop raising interest rates. The Fed's frequent interest rate hikes since the beginning of this year have already caused mourning in many countries and damaged the global economy. Reuters warned that the pace of the Fed's interest rate hikes has caused global concern that the U.S. central bank is dragging the world economy to the point of no return. What is remarkable is that the Fed's interest rate hike comes at a time when the US midterm elections are about to be held, which may affect or even change the outcome of the election.

Powell: It's better to add more than enough

According to the Associated Press, on the 2nd local time, the Fed announced a 75 basis point interest rate hike after holding its latest policy meeting, raising the target range of the federal funds rate from 3%-3.25% to 3.75%-4%. CNN said on the 2nd that the Fed pushed the federal funds rate to the highest level since January 2008 as part of its efforts to curb white-hot inflation. The US consumer price index (CPI) reached a nearly 40-year high in September, up 8.2% year-on-year.

The Wall Street Journal reported that Fed Chairman Powell signaled plans to continue raising interest rates at a press conference after the announcement of the rate hike, but it may be a small gradual pace to raise rates to a higher level compared to previous expectations. But Powell warned that reducing the pace of rate hikes does not mean the Fed believes it is close to turning around, and "it is too early to consider pausing (rate hikes)." We think there is still some way to go." According to the Wall Street Journal, Powell's view is that it is better to raise interest rates too much than to raise interest rates insufficiently, because he believes that if inflation is entrenched, it will cost the US economy more.

Reuters reported on the 2nd that after Powell's speech, the main US stock indexes turned from rising to falling and closed with a sharp decline. At the close of trading on the 2nd, local time, the S&P 500 index fell 2.5%, and the Nasdaq fell more than 3%. In addition, the US bond, foreign exchange and precious metals markets also fell.

Along with the decline in the US stock market, there was confidence in the US economy. CNN said on the 2nd that the Fed's interest rate hike policy may further push up borrowing costs and deepen the economic pain of millions of American businesses and households. Today's Russia TV quoted Russian experts on the 3rd as saying that although tightening monetary policy is to stabilize prices, it does not rule out that a sharp increase in interest rates will bring greater challenges to the US economy, which means a possible recession.

Bai Ming, deputy director of the International Market Research Institute of the Research Institute of the Ministry of Commerce, told the Global Times reporter on the 3rd that the impact of the Fed's interest rate hike is multifaceted. The negative impact of its early interest rate hike measures is not large, and the domestic employment situation is relatively optimistic, which has played a certain positive role in economic development. However, at present, the Fed has raised interest rates in a large amount, like a "stacked arhat", the higher the accumulation, the easier it is to be unstable, and once there is a thunder explosion, it will quickly affect the overall economic development of the United States.

Biden's warning

Yu Xiang, a special expert of the Center for Strategic and Security Studies of Tsinghua University, told the Global Times reporter on the 3rd that the most concerned of the American people is still economic issues, and reducing inflation and improving employment are the demands of voters. The midterm elections are very important for the Biden administration, which also wants the Fed to introduce measures to bring inflation down. But a sharp rate hike is a sharp medicine, and it is difficult to suppress inflation without a recession.

According to Australia's Sydney Morning Herald, the Fed's push for a sharp rate hike could disturb voters, which in turn could affect the Democratic Party's victory in next week's midterm elections. And US President Joe Biden is impassionedly calling on Americans to protect their ailing democracy. The newspaper said on the 3rd that the Fed raised interest rates by 75 basis points, but the US president returned to a familiar theme - democracy is threatened. Biden delivered a speech at an event of the Democratic National Committee on the 2nd, comparing the attack on Paul, the husband of US House Speaker Pelosi, with the Capitol riot. "We are facing a defining moment when we must speak out as a nation with an overwhelming and united voice: voters do not tolerate intimidation," he said. ”

The Sydney Morning Herald believes that the speech was a big gamble for Biden, and top Democratic officials, strategists and voters are increasingly worried that the party is not working hard enough on economic issues, allowing Republicans to blame Biden for soaring oil prices and inflation. According to the latest data from the US polling website "538", 65% of Americans believe that high inflation is the most important problem that needs to be solved in the United States, and this will undoubtedly be one of the decisive factors affecting the final vote of voters. McCarthy, the Republican leader of the US House of Representatives, said on Twitter on the 2nd: "When the United States needs unity, President Biden is trying to divide and divert attention because he can't talk about his policy of pushing up the cost of living, and the American people don't buy it." ”

"America is making the world uncomfortable"

The Associated Press said on the 2nd that outside the United States, the central banks of many other major economies are also rapidly raising interest rates in an attempt to reduce or even higher than the inflation level in the United States. Last week, the European Central Bank announced its second consecutive sharp rate hike to curb inflation, which surged to 10.7% in October. Similarly, the Bank of England announced a 75 basis point rate hike on the 3rd. Agence France-Presse said it was the biggest increase in 33 years. The Bank of England expects inflation to peak at 10.9% this year and a UK recession to continue until mid-2024.

The German edition of "Business Insider" said on the 3rd that the Fed is forcing other central banks to also face pressure to raise interest rates so as not to make the gap with the United States too large. For example, investment in the United States is already more attractive than in Europe. This caused the dollar to strengthen against the euro and many other currencies. This, in turn, makes imports that are usually settled in US dollars more expensive for many countries. This is especially true for energy. Swiss SRF TV said on the 3rd that the central banks of many countries are facing the same dilemma. If they raise rates too slowly, inflation will remain high. If interest rates are raised too quickly, it will stifle economic growth. "America is making the world uncomfortable." The Atlantic said that in the past few months, the Fed has rapidly raised interest rates to stabilize prices, but it has failed to control inflation and created pain in the United States and around the world.

What is the impact of the Fed's rate hike on China? In Bai Ming's view, the impact of the Fed's interest rate hike depends on the structure, growth space and attractiveness of each economy. He said that China's economic foundation is sound, the balance of international payments is stable, and it has strong foreign exchange reserves. China's economic development space is vast, and it is highly attractive to international capital, as long as the economy is done well, it can fully resist the impact of the international environment.