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British expert: Fed’s aggressive rate hikes lead to investment flow from Europe to the United States
Xinhua News Agency, London, October 1 (Reporter Huang Zemin) Several British experts said in an interview with Xinhua News Agency recently that the Federal Reserve’s aggressive interest rate hikes are having a negative impact on the world economy, causing investment to flow from developed economies such as the European Union and the United Kingdom to the United States. And significantly increase the cost of debt service in emerging markets.
John Bryson, a professor at the University of Birmingham in the United Kingdom, told reporters that the Federal Reserve has adopted aggressive interest rate hikes to curb inflation, and has raised interest rates by 75 basis points three times in a row this year. This results in investment flowing from Europe to the United States. As the interest rate gap between the United States and the European Union and the United Kingdom has widened, the scale of investment flows to the United States has further expanded.
Ian Berger, a professor at the Institute of European Studies at the London School of Economics and Political Science in the United Kingdom, said that U.S. interest rate policies tend to put pressure on the exchange rates of other countries’ currencies. The UK will have to follow the pace of US interest rate hikes if it wants to avoid a sharp drop in the value of the pound. Sterling, the euro, the yen have all experienced this, and some emerging markets have been hit very hard.
Berger said the Fed was aware that what they were doing would have knock-on effects on the rest of the world‘s economies, but had no regard for other countries’ feelings.
Gareth Lesser, an economist at Capital International Macroeconomic Consulting, said in a report that a stronger dollar is threatening countries that hold large amounts of foreign debt and have serious inflation, causing them more pressure to raise interest rates. These countries will have higher debt-to-GDP ratios and higher debt-servicing costs. A weaker local currency will also push up the cost of imported goods, further fueling inflation. A stronger U.S. dollar is particularly worrying given that inflation levels in many countries have remained high recently.