Wang said financial news: The Fed put eagles, the US dollar index soared, but the global economy is very "headache", why do you say so?
Just this week, Federal Reserve Bank of Cleveland President Loretta Mester and a number of other officials have said that with inflation pressures still not easing significantly, the Federal Reserve may need to raise interest rates again by the end of the year.
Mester said: "With inflation pressures continuing to cloud the United States, the Fed may not have finished the rate hike cycle, and the Fed will need to raise rates once more this year." However, whether interest rates should be higher than they are now and how long restrictive monetary policy needs to be maintained will ultimately depend on economic developments."
Notably, these are Mester's first public comments since the Fed's policymaking meeting last month. The Fed kept rates on hold after the meeting, but officials at the meeting signaled one more rate hike by the end of the year.
In addition to Mester, several other Fed officials also expressed views on the future path of interest rates, although they mostly argued for the need to raise rates further by the end of the year.
First, Fed Governor Michelle Bowman, who is seen as a new hawk, reiterated that the Fed may need to raise rates more than once if the cooling of inflation stalls or becomes too slow.
In addition, Michael Barr, the Fed's vice chairman for regulatory affairs, said it would be necessary for the Fed to keep interest rates high for some time in order to bring inflation back to target.
As mentioned above, with the rise of the hawkish power of the Fed, coupled with the continued surge in the US 10-year US Treasury rate, the dollar index broke through the 107 mark at the start of the new quarter trading, a new 11-month high.
From the specific data point of view, the US dollar index successfully conquered the 107 level on October 2, and rose to 107.21 on the third day, once again rewriting the 11-month high. The dollar strengthened against both the euro and the pound, trading at $1.0473 and $1.2052, respectively, the highest in 10 months and nearly 7 months, as the chart below shows:
In this regard, ING predicts that if the US 10-year Treasury interest rate rises further above 4.75%, the US dollar index will have a chance to challenge the 108 mark.
So here's the problem: the dollar index is soaring, which helps tame inflation in America, but gives the rest of the world a headache. Why do you say that?
As Wang said that finance has analyzed before, the strengthening of the US dollar, which also makes other countries' import costs and debt service will be aggravated, in addition, the central bank's task of fighting inflation and supporting fragile economies is more difficult.
There is no doubt that any sharp exchange rate movements will create winners and losers.
In the case of America, a strong dollar, on the one hand, depresses import prices and thus inflation; On the other hand, cheaper travel abroad has many benefits for American consumers.
By contrast, the rest of the world is not happy about the return of a strong dollar!
Interest rates in many countries have reached multi-year or multi-decade highs, raising the risk of stress in financial markets. Higher interest rates, a stronger dollar and higher oil prices threaten to weaken global growth and make financial conditions more fragile.
Even U.S. companies with a strong focus on overseas operations, such as Apple Inc., suffer from a stronger dollar as their dollar-denominated overseas revenues shrink and products sold abroad become more expensive and less competitive.
Until now, the dollar has been the dominant currency for global trade and finance. Commodities such as crude oil and wheat are often denominated in dollars, and any fluctuation in the dollar's exchange rate could have dramatic effects outside the United States.
Moreover, governments, businesses and households around the world have trillions of dollars worth of debt, and when the dollar appreciates, the burden of import costs and debt servicing will become more heavy.
On a country-by-country basis, Latin American and Eastern European currencies have been hit by the strong dollar in recent months. In particular, in 2021, central banks in Brazil, Poland and Hungary, which have been praised for their rapid tightening of monetary policy, have cut policy rates before the Fed and other central banks in developed markets.
But these emerging market central banks will now be forced to pause or slow their rate cuts in order to prevent further pressure on their currencies.
What do you think about that? What do you think will happen to the dollar next? What does this mean for other countries?