How US Federal Reserve Interest Rate Hike Will Affect The Indian Economy – News18

The world’s largest economy, the United States, is currently grappling with a double predicament. The surge in inflation has created challenges for both the banking system and the general public. In response to this, the central bank of the US, the Federal Reserve, has been forced to increase the cost of loans, impacting overall economic growth.

In an unprecedented move, the US Federal Reserve System has raised its interest rates for the 11th time this year. Remarkably, not even during the Great Depression of 2008 did the US face the need to increase interest rates to such a level. However, the surging inflation has become a pressing concern, leaving Fed Chairman Jerome Powell with no choice but to resort to raising interest rates. Powell asserted that interest rates will continue to climb until the consumer inflation rate is brought down to 2 per cent.

The American central bank increased interest rates in 11 out of 12 meetings in 2013. During the latest meeting on Wednesday, the interest rate saw a 0.25 per cent hike, reaching the current rate of 5.50 per cent. This surge in interest rates marks the highest level seen in the US in the past 22 years. As a result, consumer spending capacity has decelerated. Notably, various reputable institutions including the World Bank, IMF and other financial agencies, have downgraded America’s GDP growth rate in response to these economic challenges.

Retail inflation recently reached its highest level in 42 years, prompting swift interest rate increases to curb it. Fortunately, these measures contributed to a slight decrease in inflation, settling at just over 3 per cent. Nonetheless, the US Fed Reserve’s objective is to elevate it to 2 per cent. Despite these efforts, the growth rate has begun to slow down, sparking concerns about a potential recession. Global experts have issued warnings about the American economy possibly teetering on the brink of a recessionary phase.

The rise in interest rates in the USA is expected to slow down economic growth, affecting big tech companies, including Indian ones that derive around 40 per cent of their earnings from the US market. This decline in earnings could lead to job risks and possible retrenchment in the sector. The IT industry is already facing challenges and both foreign and Indian tech companies’ shares may witness a decline, putting retail investors under pressure.