The Federal Reserve may announce interest rate hikes. The last round of interest rate hikes caused heavy losses in emerging economies.
CCTV News: On 14th local time, the Federal Reserve opened a two-day monetary policy meeting, and will announce the resolution of the meeting on 15th. As the United States is facing the worst inflation situation in 40 years, the market’s expectation of the Fed’s aggressive interest rate hike is heating up. Many major banks and investment banks, such as JPMorgan Chase and Wells Fargo, generally expect that the Federal Reserve will announce a 75 basis point interest rate hike to curb inflation soaring again. This may also be the largest rate hike by the Federal Reserve since 1994.

In March this year, the Federal Reserve raised the target range of the federal funds rate by 25 basis points from the level close to zero, which started the tightening cycle to curb inflation. At the beginning of May, the Federal Reserve announced another 50 basis points interest rate hike, and hinted that it might raise interest rates by 50 basis points each time in June, July and September this year.
More and more economists believe that the Fed takes more radical measures to deal with inflation, and the risk of the US economy falling into recession is rising.
The Fed’s last round of interest rate hikes and contraction caused heavy losses in emerging economies.
It is not alarmist for the Federal Reserve to harvest the world and consolidate American financial hegemony by raising interest rates.
The Federal Reserve started the last round of interest rate hike cycle in December 2015. By the end of 2018, the Federal Reserve raised interest rates nine times. During this period, the Fed also launched a plan to reduce its balance sheet to gradually withdraw from the loose monetary policy introduced after the financial crisis. Under the impact of the Fed’s continuous interest rate hike and table contraction, the liquidity of the US dollar continues to tighten around the world, and many emerging economies and some developing countries have experienced different degrees of local currency depreciation, capital outflows and economic setbacks.

In order to consider the interests of the United States and curb inflation, the Federal Reserve started a new round of interest rate hike cycle in December 2015, and raised interest rates four times in 2018, and the US dollar index rose sharply. At the same time, in October 2017, the Federal Reserve officially launched the table reduction plan to reduce its super-large balance sheet, and the market currency circulation decreased. The dual role of raising interest rates and shrinking the balance sheet has caused emerging market countries with high external financing needs to bear the brunt and suffer heavy losses.
In 2018, the exchange rate of Argentina’s national currency peso against the US dollar fell by 50.56%, and the inflation rate reached 47.6%, the highest in 27 years. In order to curb the devaluation of the peso, the Argentine government had to seek financial assistance from the International Monetary Fund. In June 2018, it finally reached a loan agreement of 50 billion US dollars to make up for the fiscal deficit and stabilize the exchange rate.
The Brazilian currency, the real, also continued to depreciate in 2018. Although the intervention of the Brazilian central bank led to a rapid decline in the exchange rate, it still failed to reverse the reality that the real depreciated by 20% against the US dollar.
Due to the massive outflow of capital and the deterioration of the balance of payments, the expectation of exchange rate depreciation continued to strengthen. In August 2018, there was a currency crisis in Turkey, and the lira exchange rate plummeted by more than 30%, which led to a slowdown in investment and consumption, and the prices of daily consumer goods and energy rose sharply.
Market analysts pointed out that when the quantitative easing monetary policy was implemented in the United States, a large amount of funds flowed to emerging market countries, which fostered local currency and asset bubbles to varying degrees. However, the Fed’s interest rate hike caused a large amount of funds to flow back to the United States, the global monetary tightening, and a large amount of funds from emerging market countries, which triggered exchange rate turmoil and even led to currency crisis or financial crisis. However, the "shrinking table" policy adopted by the United States is to "pump water" from the "reservoir" of the financial market. In the highly leveraged environment of the American financial system, its lethality is even greater, leading to the loss of investor confidence and the bursting of the financial asset bubble. Through these operations, the United States absorbs the high-quality assets of emerging economies, passes on its own crisis, and easily "shears wool".



