Global Economic Forecast: Potential US Interest Rate Hike, China Prioritizes Stability, and More Must-Read Stories
US interest rate rises may be on the way; China seeks ‘stability’ and other economic stories you must read this week.
Welcome to our weekly round-up of economic and financial news stories. This week, we will update the US Federal Reserve’s stance on interest rates, China’s growth target, and Japan’s economic performance.
Larger interest rate rises may be on the way, US Fed indicates
The US Federal Reserve has hinted that it may need to raise interest rates faster than expected to combat inflation. The Fed Chair, Jerome Powell, said that recent strong economic data suggests that tougher measures may be needed to control inflation, and the Fed is prepared to raise rates in larger steps if necessary.
This announcement comes as the Fed policy rate is currently in the 4.50-4.75% range, and officials previously expected it to rise to around 5.1%. However, investors now predict it could rise at least 0.5 percentage points higher. In addition, changes in US interest rates have a ripple effect worldwide, as many countries that peg their currency to the US dollar follow suit and adjust their rates accordingly.
China prioritizes ‘economic stability amid low growth expectations
This year, China’s economic growth target is 5% as it vows to prioritize economic stability following a challenging 2022. The target is lower than most economists’ expectations and could affect global growth, as China is one of the world’s largest economies.
The country’s GDP grew by just 3% last year after being severely impacted by COVID-19 restrictions, a crisis in its property sector, and weakening demand for its exports. As a result, Premier Li Keqiang has emphasized the need to expand consumption and improve the incomes of urban and rural residents to stabilize spending on big-ticket items and promote recovery in consumer services.
Japan narrowly avoids recession.
Japan narrowly avoided a recession as its GDP grew by an annualized rate of 0.4% in the final quarter of 2022. This came after the country experienced two consecutive quarters of contraction. However, the outlook for the Japanese economy remains uncertain as the country struggles with a resurgence of COVID-19 cases, supply chain disruptions, and inflationary pressures.
- The US inflation rate fell to 6.4% in January from 9.1% in June.
- China’s annual consumer price inflation slowed to 1% in February.
- President Xi Jinping secured a third term in office, breaking with the two-term limit for Chinese leaders.
The US is signaling the likelihood of larger interest rate increases, which could have far-reaching implications for the global economy. In addition, China prioritizes economic stability with a lower growth expectation, and Japan’s economic outlook remains uncertain. Therefore, investors should closely monitor these developments and adjust their investment strategies accordingly.
The global economy is facing numerous challenges as it grapples with the ongoing effects of the COVID-19 pandemic, supply chain disruptions, and inflationary pressures. In addition, the US Fed’s potential rate hikes, China’s lower growth target, and Japan’s uncertain economic outlook all contribute to the current economic landscape. Therefore, investors must stay vigilant and informed to navigate these turbulent times.