Macroscope | Higher interest rates loom as Federal Reserve faces the music on inflation

Name: As Hongkongers struggle with rising inflation, the city’s most vulnerable are the hardest hit
Uploaded: 2021-12-13T08:30:20.000Z
Duration: 2 min 47 s
Description: As Hongkongers struggle with rising inflation, the city’s most vulnerable are the hardest hit

If the Fed succumbs to pressure to act quickly on curbing inflation, higher interest rates will emerge in the US and cascade across the globe

Even if gradualism wins the day, though, the days of easy money and low interest rates are almost certainly coming to an end

Reading Time:3 minutes

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A woman shops at a Dollar Tree store where US$1.25 price tags are now posted on the shelves in Alhambra, California, on December 10. The store is known for its US$1 items, but prices have risen amid continued inflation. Photo AFP

David Brown

Published: 4:30pm, 13 Dec 2021

Who’s afraid of inflation? Certainly not global equity markets, judging by the boom conditions rippling through the major exchanges right now.

Is it a return to the Roaring Twenties, with an unbridled boom followed by a catastrophic crash? Are we about to see a modest extension of the rally as the world adjusts from post-pandemic downturn to progressive global economic recovery?

Much depends on how central banks adjust to the new reality, especially how the Federal Reserve reacts to the shock of US consumer price inflation hitting an almost 40-year high of 6.8 per cent in November.

The multitrillion-dollar question is whether the Fed is on the brink of removing the market’s “punch bowl” of cheap money, which was spawned by years of quantitative easing and debt buy-backs following the 2008 financial crash and has accelerated through the Covid-19 pandemic.

If the Fed is on the verge of hitting the panic button over inflation, then high noon looms for global interest rates. Once the United States sets the ball rolling for higher rates, it will pose deep challenges for China and frustrate any chance of easing monetary policy again in this cycle.

02:47

As Hongkongers struggle with rising inflation, the city’s most vulnerable are the hardest hit

There has never been a better time for calm nerves on the US Federal Open Market Committee (FOMC) when it meets this week to consider its policy options for the coming months. Its much-awaited interest rate decision is expected on Thursday.

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.css-1m2rp1p{color:#34b8b5;}Macroscope | Higher interest rates loom as Federal Reserve faces the music on inflation

Macroscope | Higher interest rates loom as Federal Reserve faces the music on inflation