Thailand’s China Daily reported on May 4 that the Kaitai Research Center expects that the Federal Reserve will raise interest rates by 0.50% according to the previously released signal at the interest rate meeting held on May 3-4 to curb the inflation rate that continues to accelerate at a high level. . For most countries in Asia that are undergoing economic recovery and need to maintain loose monetary policies, they will face the pressure of continued depreciation of their currencies.
The Fed’s focus is still on stabilizing prices, and a 0.50% rate hike is the most effective medicine to curb the inflation cycle. Headline inflation, as measured by the consumer price index, accelerated to 8.5% in March 2022 from a year earlier, official data showed. In addition, under the influence of the Russian-Ukrainian conflict, the prices of energy, food and housing, as well as service fees have risen widely, which has increased the pressure on global inflation. At the same time, the Fed will consider starting to shrink its balance sheet, which is worth nearly $9 trillion.
The Fed adopts a tightening policy, more to help the U.S. economy to a soft landing, hoping to reduce the risk of real estate and financial bubbles bursting, but it does not want to see the economy fall into recession. The Fed also believes that the robustness of the U.S. labor market is sufficient to support the impact of the tightening policy. The U.S. unemployment rate continued to drop to 3.6% in March 2022, the lowest level in two years, and employment conditions in some industries such as retail and finance have also returned to pre-coronavirus levels.
Looking ahead, the impact of the Russia-Ukraine conflict will continue to put pressure on U.S. inflation, while at the same time weakening and causing further deterioration of the U.S. economy and the global economy. Therefore, the Fed’s future monetary policy will face more challenges. Inflationary pressure may prompt the Fed to accelerate the pace of interest rate hikes, and the Fed may need to raise interest rates by 0.50% in each of the five interest rate meetings for the rest of the year.
The market still believes that the US policy rate will be 2.75-3.00% by the end of this year. Faster rate hikes by the Fed will boost the dollar, while central banks that run counter to the Fed’s monetary policy will face pressure from capital outflows and a weakening currency. For most countries in Asia that are undergoing economic recovery and need to maintain loose monetary policies, they will face the pressure of continued depreciation of their currencies.
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