Reduction in interest rates needed to ensure economic growth: Experts
ALL eyes are turned to the decision of the US Federal Reserve Board (FRB) after the statements made by its chairman Jerome Powell that it is possible for the rates to ultimately increase to higher than officials’ anticipations in September. However, the report published last Wednesday gave more accurate overview indicating that rates will ultimately reach their peak at the level that has never been anticipated before.
The official of FRB underscored earlier this month that the central bank must slow down the pace of interest rate increases in pursuit of mitigating the risk of excessive tightening, which indicates they tend to turn into a 50 basis point hike in December.
The investors predicted that FRB is poised to raise the interest rates by 50 basis points, when the board convenes on December 13-14, to peak at 5 percent by mid-2023, while the chairman of FRB will have an opportunity to impact these projections in his speech in Washington scheduled to be held on November 30, 2022.
In this context, Economist Bashir Al Kahlout anticipated that FRB might return to reverse its policies and conduct reductions on the interest rates to ensure the preservation of the US and global economies to never slip into a state of chronic recession.
In a statement to Qatar News Agency Al Kahlout said it is logical for FRB to pursue its policy in halting the wave of escalation of interest rates on the dollar, which was projected to witness a final round next December at a rate of 0.25 percent, due to the approaching winter season and the intensification of the cold wave in Ukraine and western European states, with the disruption of power plants in Ukraine, pointing out that businessmen, along with the banking sector are anticipating the approach of the end of the current period where inflation and interest rates have dramatically risen at the level that has never been witnessed before in many years.
He underlined that such a thing is demonstrated in raising the key interest rate many times this year by FRB with a total of 3.75 percent, adding that such a thing did not of course emerge from a vacuum, but it was due to the accelerating consequences arising from the Russian-Ukraine war manifested in the powerful spike of oil and gas prices to extremely high levels.
On the other hand, the Economist Abdullah Al Raisi predicted stability in inflation next year, where he confirmed to (QNA) that increasing the interest rates is not the solution to the global inflation problem, but the solution entails the serious monitoring and control of prices, in addition to holding those responsible for increasing the prices at the individual and corporate levels accountable.
He pointed to the inaction and negligence of the responsible entities at the international level in managing this inflation, who are authorized to take serious actions in this regard, expressing his optimism that growth will be logical in the trade and industrial sector in 2023, noting the existence of global breakthroughs with the reduction in political tensions, and the situation between Russia and Ukraine, which makes the global financial markets somewhat stable.
Forecasts by the world’s major investment banks indicated that global economic growth would slow further in 2023, after a year ravaged by the Russian war in Ukraine and high inflation, which caused one of the fastest cycles of monetary policy tightening in recent times.
FRB and the Bank of England are working to fight inflation by using the interest rate, where all expectations indicate that FRB will raise the interest until it reaches 5 percent.
FRB has already raised interest rates by 3.75 basis points this year, since the first hike in March, and this has fueled fears of a recession even as the FRB is expected to moderate the pace of increases.
The high-interest rate squarely affects economic activity, as the high-interest rate leads to an increase in the cost of business and thus an increase in the cost, which causes great harm to companies, in order to expand their business and investments, companies begin to lay off their workers in order to reduce the cost and this will lead to an economic downturn.
The main cause of inflation is the disruption in the supply chain, which came as a result of the COVID-19 pandemic, along with the cessation of economic activity in all world countries, because the return of economic life to pre-pandemic level will help restore the global economy to balance.