US Federal Reserve’s Hike in Interest Rate to Affect China’s Efforts to Counteract Slowdown
The US Federal Reserve has declared a hike in the interest rate by 0.25%, the first time since the financial crisis of 2008, however, it is expected to influence the efforts of China to counteract economic slowdown and steady the Yuan. The Asian countries on the other hand have welcomed the hike as an indication of strength in the economy of America.
According to Masamichi Adachi, economist of JPMorgan, Tokyo, the change in the interest rate is unprecedented. With the real economy, having its own share of uncertainties such as the high corporate level debts, decline in oil prices, and more, the new development can affect China’s effort to restrict its economic slowdown.
Historical Decision by the Fed
It is being considered as one of the best historical moves by the Federal Reserve Open Market Committee, which has voted for the raise. Since 2008, the Fed retained the rate at 0% to support and stabilize the depleting American economy during the Great Recession. With several economists arguing against the hike, it was doubtful whether the Fed would make a move to change the rate of interest. However, the Federal Reserve managed to clear all the initial hurdlers, declared the hike, and ended the speculations.
Is US Economy Ready For the Raise?
Several economists consider that the US economy is still weak and the Committee should have waited until inflation was in sight. Even in the past, the Fed raised the interest rates, but the move was usually to reduce the impact of inflation on the overall economy. Since the current economy of the U.S. is yet to completely recover from the blow of the 2008 financial crisis, economists believe that Fed has not timed the raise rightly.
One of the reasons behind the hike could be that the Federal Reserve wants to maintain higher interest rates for sometime so that it is in a position to lower them if there is another slowdown in the economy. Larry Summers, the former economic advisor to the Obama Administration, said that raising rates at this stage can be a serious mistake when the economy is already faltering. Summers says that it is a risk that can altogether stop the speed of economy ushering in a new recession period.