The Week in Business: Higher Interest Rates Are Coming
What’s Up? (Jan. 23-29)
The End of Near-Zero Interest Rates
After nearly two years of near-zero interest rates, the Federal Reserve signaled that it would probably raise them in March. Jerome H. Powell, the Fed chair, said officials no longer thought that America’s rapidly healing economy needed so much support, given that inflation is running far above policymakers’ target and the tight labor market. By making it more expensive to borrow money to buy a house or car, the Fed hopes the higher interest rates will cool demand and eventually help rein in inflation. The Fed’s preferred measure of inflation, the personal consumption expenditures index, was 5.8 percent in December, the fastest pace since 1982 and one that could be disastrous for the political prospects of President Biden and his fellow Democrats in the November midterm elections.
Market Turbulence
Whether you held traditional stocks, cryptocurrencies or a combination of both, it was a stressful week to be an investor. Stocks swung wildly as uncertainty about upcoming interest rate increases — how many and how quickly — came at the same time as positive signs about growth in the American economy last year. Bitcoin, the largest cryptocurrency, continued its dramatic fall before inching up slightly, though its value remained just above where it was last summer. Bitcoin’s value is now about half of its peak in November.
Slowing Economies
The International Monetary Fund released new predictions for 2022, showing slower economic growth than it had previously predicted, driven mostly by issues with the world’s two largest economies, China and the United States. Compared with the 5.9 percent growth experienced in 2021, the I.M.F. predicted that global growth this year would be 4.4 percent, down from its earlier prediction of 4.9 percent. The demise of President Biden’s Build Back Better legislation coupled with reduced economic support from the Fed and persistent supply chain issues contributed to the lower expectations for the United States, while China’s economy continues to struggle with its disruptive “zero Covid” approach and a troubled real estate sector.
What’s Next? (Jan. 30-Feb. 5)
To Boycott or Not to Boycott?
The 2022 Beijing Winter Olympics begin this week, as China is under increasing scrutiny for human rights abuses, including allegations of forced labor in Uyghur communities in Xinjiang. The United States, Britain, Canada and Australia have announced they will not be sending government officials to Beijing, in a diplomatic boycott of the Games. Many of the world’s most famous brands, however, will still be there, including Visa and Coca-Cola. Corporations’ reluctance to boycott the Games could soften the political blow of the diplomatic boycotts.
Article source: https://www.nytimes.com/2022/01/30/business/the-week-in-business-interest-rates-stock-market.html