According to analysts and economic experts, the US decision casts a shadow over many emerging economies, especially as it prompted many central banks around the world to move to a similar rise in interest rates, which threatens to increase debt burdens on developing countries and raise unemployment rates, as well as a decline in the purchasing power of currencies. In addition to the exit of the so-called “hot money”, which are financial flows from outside the country for the purpose of investing and benefiting from a specific economic situation.
The US Federal Reserve predicted “continuous increases” in borrowing costs despite evidence of a slowing economy.
Essentially, the goal of successive increases in Washington’s interest rates is to make credit more expensive to slow consumption and investment and ultimately relieve pressure on prices.
The increase is the second in a row by 75 basis points, and the fourth rate hike this year, as US central bank governors move aggressively to calm the strongest rise in inflation in more than four decades, to avert a recession in the world’s largest economy.
The economic analyst, non-resident fellow at the Atlantic Council’s Global Energy Center, Paul Sullivan, told Sky News Arabia that “the global economy is interconnected through many complex ways, and therefore the decision to raise interest rates in the United States will have It has many multidirectional effects on the economies of the rest of the world.”
He explained that “the new increase in interest rates will make borrowing money more expensive for many countries and institutions, and it may also attract money towards the United States from countries with low interest rates, in addition to it can make the US dollar more valuable, and this could cause a decline in interest rates.” investment and spending in the United States.
Sullivan added that “when investment and spending are reduced, inflationary pressures can be reduced, however, some inflation is imported inflation, and therefore importing high-priced goods increases those pressures on inflation rates, especially in emerging markets.”
The economist pointed out that the US Federal Reserve’s decision prompted many other countries to increase the interest rate in their domestic markets.
And on the impact of the US economic decision, several Gulf central banks announced that they would raise interest rates by 75 basis points, while analysts expect the Central Bank of Egypt to raise interest rates during its next meeting in the middle of next month.
Fears escalated that the decision to raise interest rates in the United States would cause a broad economic recession, after reports of slowing real estate market sales, declining consumer confidence, and rising unemployment claims.
Federal Reserve Chairman Jerome Powell has acknowledged that sections of the economy are slowing, but said the bank is likely to continue raising interest rates in the coming months despite the risks.
Sullivan said that while emphasizing that the unemployment rate appears to be low in the United States, but with an increase in the interest rate, many people may lose their jobs and many companies may lose their investments, especially those who work in real estate and other sensitive markets are already threatened to lose Lots of jobs.
He pointed out that such a significant rise in the interest rate could lead to a deeper recession, and when the United States enters a recession, its trading and investment partners can also see a decrease in demand.
For her part, the researcher at the Economics and Energy Studies Unit at the Egyptian Center for Thought and Strategic Studies, Basant Gamal, said that the move to raise interest rates again comes in light of the continued suffering of the world from the repercussions of the Corona pandemic, which resulted in a state of imbalance in the supply and demand sides, and the decline in the supplies of many Commodities due to the closures and precautionary measures that the world has witnessed.
She added, in statements to “Sky News Arabia”, that in order to control the rise in price levels, the US Central Bank began to tighten monetary policy, by raising interest rates, which will eventually lead to the phenomenon of “stagflation”, as raising interest rates from It would slow down economic growth under pressure from raising the cost of borrowing, which negatively affects investments.
Raising the cost of borrowing
The US move to raise the interest rate could affect emerging economies that are not isolated from the events taking place in the global arena, according to the economic researcher, on top of which comes undermining the attractiveness of domestic debt instruments, as the decision of major central banks to raise interest rates represents a risk for the markets. Emerging economies due to the possibility of undermining the attractiveness of domestic debt instruments offered by countries, as investors rush to advanced economies as they start raising interest rates, which leads to the exodus of foreign investments from emerging markets.
The repercussions also include the increased possibility of raising interest rates in the rest of the world’s economies, as many countries often decide to raise interest rates accordingly after the US Federal Reserve took this step.
She pointed out that raising the global interest rate could have a negative impact on the internal borrowing of governments in order to bridge the budget deficit, which will lead to an increase in the burden of internal debt as a result of the high cost of government borrowing, as well as curbing industrial, investment and corporate expansions as a result of raising the interest rate on borrowing.