Later in July US interest rates are expected to jump for a second time this year, and that’s going to wreck any chance of a global recovery.
The Federal Reserve could push its base rate up by as much as a full percentage point, ending 15 years of ultra-cheap money, intended to promote growth.
This jump, to a range of 2.5%-2.75%, would take the cost of borrowing money in the US to more than double the Bank of England’s 1.25%. And yet the Fed could just be taking a breather as it contemplates even higher rates.
This column, though, is not about the US. It is concerned with the terrible impact on Britain and countries across the world of America’s selfish disregard when it decides to tackle high inflation with higher borrowing costs. Britain is already feeling the effects of the Fed’s pledge to tackle inflation until it is “defeated”, come what may.
Higher interest rates in the US make it a more attractive place for investors to store their money. To take full advantage, investors must sell their own currency and buy dollars, sending the price of dollars rocketing higher.
In July the US dollar increased in value against a basket of six major currencies to a 20-year high. The eurohas slipped below parity with the dollar in the last few days. The pound, which has plunged by more than 10% this year to below $1.20, is losing value with every week that passes.
In Japan, the central bank has come under huge pressure to act after the yen tumbled to its lowest level against the dollar since 1998.
There are two important knock-on effects for those of us that live and work outside the US.
The first is that goods and raw material priced in dollars are much more expensive. And most commodities are priced in dollars, including oil.
Borrowing in
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