Transferred from: Xinhua News Agency
Xinhua News Agency, Washington / Tokyo, May 24th, "the US dollar is our currency."Crashnitrokartps2But it's your trouble. " The arrogant words of John Connery, a former US Treasury secretary, have been tested again.
The minutes of the meeting released by the Federal Reserve Board on the 22nd show that the Fed is worried about the current inflation situation in the United States and that high interest rates may remain high for a longer period of time. In response to inflation, the Fed began to raise interest rates aggressively in 2022, raising interest rates by 25 basis points for the last time in July 2023, and has since decided to keep interest rates unchanged at six consecutive monetary policy meetings. The Fed's keeping interest rates high, coupled with continued geopolitical tensions in recent years, have led to global capital flows to the United States and pressure on many currencies, which could have serious consequences for the world economy.
How long will the Fed's high interest rates last? What is the situation of many Asian countries that have been greatly affected? How will the global economy be affected? Please take a look at the solution Bureau.
Keep interest rates high
The minutes of the Fed's monetary policy meeting from April 30 to May 1 released on the 22nd showed that the prices of goods and services in the United States have risen significantly recently, and there is a "lack of further progress" in achieving the Fed's long-term inflation target of 2%. Us inflation faces a number of upside risks, especially geopolitical factors that could cause prices to continue to rise, putting pressure on consumers, especially low-income groups.
Fed officials believe that the current level of the federal funds rate is sufficient to curb US economic activity and reduce inflation, which is expected to fall back to 2% in the future, and the Fed may keep the current interest rate unchanged.
This is the sixth time in a row that the Fed has kept the target range of the federal funds rate at 5.Crashnitrokartps2.25% to 5%Crashnitrokartps2Between .5%. Federal Reserve Chairman Colin Powell said that demand in the US labor market remains strong and inflation is growing faster than expected. In this case, "it may be appropriate to postpone the rate cut".
In a series of recent speeches, Fed officials at all levels reiterated that they would keep interest rates high for some time, and even said they would not rule out the possibility of raising interest rates again. The Fed is widely expected to keep interest rates unchanged for the next two meetings.
Reuters reported on the 24th that the dollar is expected to record its biggest weekly rise in a month and a half, with various currencies, including the yen, under pressure.
Devaluation of multinational currencies
During the COVID-19 epidemic, the Federal Reserve launched an unprecedented "big release" of currencies, made a sharp turn in 2022, and began to raise interest rates aggressively to deal with inflation, bringing serious negative spillover effects to the world economy and a variety of non-US currency experiences.Crashnitrokartps2There have been many rounds of sharp depreciation.
It was widely expected that the Fed would cut interest rates this year, but the dollar index, which measures the dollar against six major currencies, hit record highs in April as expectations for a rate cut abated. The New York Times reported at the end of April that 2/3 of the roughly 150 currencies tracked by Bloomberg had weakened against the dollar.
In Asia, policymakers have taken varying degrees of action in the face of high interest rates on the dollar, from verbal warnings to interest rate hikes and even suspected intervention by buying local currencies. The Financial Times recently quoted HSBC analyst Paul Michael as saying: "the old saying of former US Treasury Secretary John Connery that 'the dollar is our currency, but your trouble' still sounds the same today."
The yen is one of the most affected major currencies. The Bank of Japan has always followed the steps of the United States, but it insists on a low interest rate policy because it is subject to domestic deflation. At its monetary policy meeting on April 26, the Bank of Japan decided to keep the current monetary policy unchanged and not to implement quantitative tightening as expected. After the news was announced, the continuously falling yen "dived" again, and the exchange rate of the yen against the dollar in the Tokyo foreign exchange market fell below 158 yen to the dollar. On the morning of April 29, the yen fell to 160.24 yen to the dollar, the lowest since April 1990.
Japanese media said the Ministry of Finance appeared to have acted twice since then, spending nearly 9 trillion yen to intervene to prevent a collapse caused by a psychological collapse in the yen after falling below the 160 mark. However, experts believe that unilateral intervention cannot solve the fundamental problem at a time when it is difficult to narrow the interest rate gap between Japan and the United States. On May 23, as of the end of the New York foreign exchange market, the dollar was trading at 156.90 yen.
The yen is not the only "troubled" currency recently. At the end of last year, the exchange rate of the South Korean won to the US dollar was less than 1300 won to the US dollar. It once lost the 1400 won mark in intraday trading on April 16. The Korean National Daily said that the exchange rate of 1300 to 1350 won could become the "new normal."
In addition, Asian currencies such as the Indian rupee, the Indonesian rupiah, the Malaysian ringgit, the Vietnamese rupiah and the Philippine peso all continued to walk out of the downward curve. The Bank of Indonesia raised the three main interest rates by 25 basis points last month to "strengthen the stability of the rupiah exchange rate".
"Dollar Tide" causes unrest
Many analysts say that in recent years, the "dollar tide" formed by the Fed's interest rate cuts and interest rate increases has harvested global wealth and passed on the crisis, constantly causing turmoil in the international market. Large-scale interest rate cuts by the Federal Reserve not only promote soaring inflation, but also reap global wealth by exporting capital through over-issuing US dollar imports and investing in other countries. Aggressive interest rate increases have led to a rapid tightening of global liquidity and a sharp devaluation of many currencies. Pressure on countries that borrow in dollars to pay off their debts has soared.
The New York Times recently reported that all the world's major currencies have fallen against the US dollar this year, which is an unusual big change that may have serious consequences for the global economy. Nearly 90% of the world's foreign exchange transactions involve the US dollar. The stronger dollar has exacerbated inflation overseas. Policymakers are caught in a dilemma, either by cutting interest rates to support the domestic economy or by keeping their currencies high.
Japanese media and experts generally believe that the depreciation of the yen is likely to continue, putting obvious pressure on the Japanese economy, which is not conducive to Japan's getting out of deflation, and at the same time putting pressure on Japan's retail, energy, aviation and other industries, increasing the burden on enterprises that rely on imported raw materials. Liu Huimei, a professor at the School of Economics and Finance at Hanyang University in South Korea, believes that the rise in the exchange rate and the sharp rise in international oil prices will increase the cost burden of enterprises and increase the possibility of further stagnation of domestic demand in South Korea.
However, a Bloomberg article analyzed that most Asian countries now have favorable conditions such as more stable foreign exchange reserves and can avoid a recurrence of turmoil similar to the Asian financial crisis of the late 1990s. Therefore, people have little need to worry about another financial crisis in Asia. (Reporters: Xu Yuan, Liu Chunyan, Su Liang, Feng Yasong, Wang Yi; Editors: Chen Dan, Wang Fengfeng, Lu Yu, Xu Liyu)