In his August 26 speech, Powell said the Fed would raise rates as needed to restrain growth and keep rates “for a little while longer” to curb inflation, which is now more than three times the bank’s 2 percent target.
Inflation in the USA is at its highest level in the last 40 years and is thought to have not peaked yet. S&P Global; He says the credit risk of financial institutions is high or extremely high in many countries, including China, India and Indonesia.
“Time of crisis”
Professor at New York University Stern School of Business Peter Blair Henry, “Crisis time for the Fed” comments and adds: “The credibility of the last 40 years is at stake, so they will reduce inflation regardless of whether it’s done damage in developing countries.”
Many developing countries borrow in dollars. FED’s increase in interest rates raises borrowing costs. In addition, it increases the risk premium of developing countries, making it even more difficult for them to borrow. It is predicted that high interest rates will increase the value of the dollar against emerging economy currencies, increasing import costs and increasing inflationary pressure.
It is stated in the news that countries such as China and India are not affected by this pressure, but smaller countries such as Turkey and Argentina are clearly victims of it. IMF chief economist Pierre-Olivier Gourinchas, “Real investment returns are already at or near troubled levels in our frontier and low-income economies.” says and continues: “This is the case with around 60 percent of low-income countries and 20 developing and borderline countries. They still have access to markets, but borrowing conditions have definitely gotten worse.”