If the Fed Keeps Raising Interest Rates, What Will Happen to the World?

At 9:30 a.m. ET on Wednesday, Federal Reserve Chairman Jerome Powell testified before the Senate Banking Committee on the semi-annual monetary policy report. He noted that the U.S. economy can withstand tighter policy, and the Fed plans to keep raising rates until there is clear evidence that inflation is slowing to the Fed's 2% target -- something the Fed is committed to. Inflation and interest rate hikes have been the most used and discussed topics in the United States in recent months. Inflation is directly directed at residents, and interest rate hikes are directed at enterprises; if the inflation rate remains high, residents' lives will be seriously affected, and if the rate of interest rate hikes is too large, enterprises will face enormous pressure. Especially when the economic situation is very severe and the economic environment is extremely poor, the harm of interest rate hikes to enterprises is very great.

At 9:30 a.m. ET on Wednesday, Federal Reserve Chairman Jerome Powell testified before the Senate Banking Committee on the semi-annual monetary policy report. He noted that the U.S. economy can withstand tighter policy, and the Fed plans to keep raising rates until there is clear evidence that inflation is slowing to the Fed's 2% target -- something the Fed is committed to. Inflation and interest rate hikes have been the most used and discussed topics in the United States in recent months. Inflation is directly directed at residents, and interest rate hikes are directed at enterprises; if the inflation rate remains high, residents' lives will be seriously affected, and if the rate of interest rate hikes is too large, enterprises will face enormous pressure. Especially when the economic situation is very severe and the economic environment is extremely poor, the harm of interest rate hikes to enterprises is very great.

However, in the face of high inflation, the Fed does not seem to find a better way than raising interest rates. If we continue to maintain normal monetary policy without raising interest rates to curb inflation, the excessively high inflation rate can be reduced, and the majority of residents can feel that the government's policies are effective and that the government is responsible for the lives of residents. Then, no one can guarantee that high inflation will not become the "Waterloo" of the Biden administration and the "last straw" of Biden's downfall. The problem is that, according to Powell's understanding and grasp of inflation, an inflation rate of 2% is the goal that the Fed must achieve, and it is also the basic standard for measuring the level of inflation, and it is also the most basic condition that American residents can bear. As long as it is higher than 2%, it means that inflation still exists, and monetary policy still needs to be tightened. Judging from the current situation, the US inflation rate is too far from the Fed's control target. The latest data shows that in May 2022, the inflation rate in the United States reached 8.6%. It was the highest in 41 years and the highest since 1981. Affected by high inflation, Biden's approval rating also fell to 39%.

In other words, the current inflation rate is several times different from the target inflation rate. So, in the face of persistently high inflation, does the Fed have any other options, and is there time and space to consider the affordability of the economy and businesses? There is no time, so I can only rub the radish and eat it for a while, and I don't care about the future. After experiencing an epic rate hike, it is necessary to continue raising interest rates, and I don’t know how many times more interest rate hikes will be required. Such policy expectations make it impossible for companies to respond, and the majority of residents can only look at it with cold eyes.

If the Fed keeps on raising interest rates in ordetonflation, what impact will it have on the world? Despite the years of globalization, most countries have accepted the concept of globalization. However, since the United States is still the largest economy in the world, the technology and finance of the United States still occupy an important position in the world, and the U.S. dollar is still the most important international currency and the world's common currency. Therefore, the impact of the United States' monetary policy on the world is still very large, especially in the international market, which will be greatly impacted. As far as the United States itself is concerned, the impact of continued interest rate hikes on the U.S. stock market will become greater and greater. The bull market that has lasted for more than a decade will not only end but will likely trigger a big bear market. By then, the impact on U.S. investors will be considerable. Under such circumstances, the Fed's policy choices will have a very large impact on the U.S. market. When the international market liquidity is too abundant and the monetary factor of inflation is very strong, it is difficult to predict how much interest rate hikes can play in alleviating the high inflation in the United States. If inflation is not contained for a long time and cannot meet the Fed's expectations, the impact of interest rate hikes on the market will continue, and it is unknown that the US stock market will crash. Whether there will be a great recession in the United States is a topic of global concern at the moment. Because high inflation and low growth are accompanying the United States to move forward with difficulty. Once the effect of raising interest rates is not good and the U.S. economy falls into a quagmire of stagflation, a recession in the U.S. economy will be a high probability event. Once the U.S. economy hits a recession, the U.S. government has the potential to go crazy. As everyone knows, the U.S. economy has not yet fallen into recession, and the Biden administration has already begun to go crazy. If a recession does occur, what method will the U.S. government use to prevent the recession and stabilize U.S. economic expectations? It will make the U.S. government conduct anti-human behaviors, including provoking military conflicts, etc., to divert the domestic economy of the United States. crisis and transfer of economic risk. If the recession is severe, it may even trigger a third world war. This is not an alarmist, but all the means of the United States.

The Fed's continued interest rate hikes will also have a great impact on the flow of funds in the international market. Because excessively high-interest rates will inevitably attract funds to the US market. However, the US economy does not seem to be able to support the high exchange rate of the US dollar, and it cannot keep the US dollar in an appreciation trend. Therefore, whether it can attract more funds to enter the US market is much more difficult to analyze and predict than before. However, for countries with fragile economies and poor recovery, the impact and impact of Fed rate hikes are unavoidable and even very dangerous.

In general, Powell's remarks that the Fed will continue to raise interest rates will have a very negative impact on the market. However, it seems impossible to avoid the fact. Even if Powell doesn't say so, investors can have a basic judgment on the Fed's policy orientation. After all, under the high inflation, the lives of American residents have been greatly affected, and the U.S. government can’t ignore them.

Media source: Tan Haojun's financial perspective