Washington, 10 January 2022 (TDI): The United States Federal Reserve (Fed) is set to increase interest rates as uncertainties rise with the Omicron variant along with the slowdown of global economic growth. The International Monetary Fund (IMF) warns that developing economies should brace for a potential rough patch as a consequence.
“Risks to growth remain elevated by the stubbornly resurgent pandemic” -IMF economists Stephan Danninger, Helene Poirson and Kenneth Kang
The extremely fast spread of the Omicron variant, which has caused massive spikes in cases around the world, led many economies to mandate lockdowns and stringent measures once again. This has severely hampered economic growth.
The IMF report on economics forecasts that global recovery from the pandemic should continue well into next year and beyond. To combat rising inflation, the Fed plans to raise interest rates more aggressively. With high-interest rates, many emerging economies that use dollar-denominated debt will suffer.
With a sudden increase in interest rates, many financial markets around the world are set to face major disruptions. Most of these economies are already struggling with the ongoing impacts of the pandemic and this turn of events is set to add more difficulties for them.
“While dollar borrowing costs remain low for many, concerns about domestic inflation and stable foreign funding led several emerging markets last year, including Brazil, Russia, and South Africa, to start raising interest rates.” -IMF
With this comes the added risk that demand and trade will slow down in the US, the dollar could also see depreciation in some markets. The IMF also added that central banks that are raising interest rates should be in communication to ensure people better understand the need for price stability.
International Monetary Fund (IMF)
The IMF is a board of 190 member nations that fund short-term emergency bailouts to countries that could otherwise cause a catastrophic economic collapse.
