Rate-raising US Fed more isolated as world economy cools

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Rate-raising US Fed more isolated as world economy cools


Stock photo: Reuters
Stock photo: Reuters

The US Federal Reserve, deep into a cycle of rate hikes it hopes to continue into 2020, faces emerging risks from abroad that could short-circuit its plans.

The threats are modest but growing, and range from the fragile state of emerging markets – including Turkey – to a slowdown in Europe that could make the European Central Bank (ECB) delay its own rate increases.

That would leave the US Fed as the only major central bank tightening monetary policy, and so likely to drive the dollar higher and make it harder on US exporters.

“The geopolitics have been turbulent. The Turkish situation has been significant: the fall in the lira, the devaluation, has been fast, and the speed of that change caught a lot of folks by surprise, us as well,” Atlanta Fed President Raphael Bostic said on Monday, though so far it is not enough to change his view that the Fed should raise rates once more this year. “Right now, we are still analysing and assessing – but it is definitely something we worry about,” Mr Bostic said.

Central bankers from around the world gather in Jackson Hole, Wyoming this week for an annual research conference focused on technical topics of market structure.

Smaller players, including Canada and Britain, have raised rates based on local circumstances. But absent comparable moves from the Fed’s immediate peers – particularly the ECB – the Fed’s rate increases may bite more than expected. Higher US rates and the strength of the US economy will likely boost the dollar, putting US exports under pressure and raising the risk of trouble among countries or companies with dollar-denominated loans. (Reuters)

Irish Independent

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