This week the Federal Reserve is formulating its plan to fight crippling inflation and the uncertainty has the stock market going haywire.

Simone Del Rosario Business Correspondent

The Fed wants to fight inflation by hiking interest rates. Here’s why other major economies won’t.

Jan 25, 2022

Simone Del Rosario Business Correspondent

By Simone Del Rosario (Business Correspondent), Emma Stoltzfus (Video Editor)

The Federal Reserve is formulating its plan to fight crippling inflation this week, and the uncertainty has the stock market going haywire. The board is meeting Tuesday and Wednesday to determine when to start hiking the central bank’s benchmark interest rate, which has been near-zero since the start of the pandemic. Many firms anticipate the Fed may hike rates four times or more in 2022, though so far the Fed has only forecast three increases. The Fed will announce its latest plan Wednesday afternoon.

The impact is widespread, from injecting volatility into the stock market to causing higher interest rates for all types of loans. But the Fed believes the move will help cool the 7% inflation the U.S. is experiencing today by removing so-called “easy money.”

While global economies experienced similar shocks at the onset of the pandemic, recovering from it looks different for major economies. When it comes to hiking central bank interest rates, the U.S. is largely going it alone. Here’s why.

China

The No. 2 economy just cut benchmark rates last week, loosening monetary policy in an effort to stave off an economic slowdown and revitalize real estate. On Tuesday, the International Monetary Fund downgraded its 2022 global growth forecast amid omicron for China and the U.S.

Japan

The No. 3 economy is living in negative interest-rate territory and has been for years.

Recently, the Bank of Japan’s governor said, “Raising rates is unthinkable.”

That’s because inflation in Japan has been below the 2% target for years, a far cry from what the U.S. is facing.

European Union

The European Union, with inflation at 5%, is experiencing conditions similar to the U.S. Still, the European Central Bank does not currently forecast any rate hikes in 2022, taking a gamble that its inflation rate will go down on its own when the supply chain smooths out.

Economists predict the U.S. will see inflation dip below 3% by the end of the year, much closer to the 2% inflation rate targeted by the Fed. Still, that cool down comes with moves by the Federal Reserve to reverse two years of pandemic policies.

Tags: Joe Biden, Pandemic

SIMONE DEL ROSARIO: WITH CRIPPLING INFLATION – THE FED THIS WEEK IS FORMULATING ITS PLAN TO FIGHT IT DOWN, AND THE UNCERTAINTY HAS THE MARKETS GOING HAYWIRE. OVER THE NEXT TWO DAYS THE BOARD WILL DECIDE WHEN TO START HIKING INTEREST RATES, WHICH HAVE BEEN NEAR ZERO SINCE THE START OF THE PANDEMIC. THAT’S GOING TO MAKE GETTING ALL TYPES OF LOANS MORE EXPENSIVE FOR EVERYONE. BUT HISTORICALLY, THE MOVE WILL COOL THE 7% INFLATION WE HAVE NOW BY REMOVING SO-CALLED “EASY MONEY.” THE ANTICIPATION OF THE FED’S DECISION IS PART OF THE REASON WHY THE STOCK MARKET’S BEEN SO VOLATILE. WITH MANY ANTICIPATING A RATE HIKE IN MARCH, AND A FEW MORE BUMPS THROUGHOUT THE YEAR. BUT WHILE GLOBAL ECONOMIES OFTEN MOVE IN CONCERT WITH THESE TYPES OF MOVES, RIGHT NOW THE U-S IS LARGELY GOING IT ALONE COMPARED WITH OTHER MAJOR ECONOMIES. HERE’S WHY. CHINA – THE #2 ECONOMY – JUST CUT ITS RATES LAST WEEK – LOOSENING MONETARY POLICY IN AN EFFORT TO STAVE OFF AN ECONOMIC SLOWDOWN AND REVITALIZE REAL ESTATE. JAPAN – AT #3 – IS LITERALLY IN THE NEGATIVE. AND BANK OF JAPAN’S GOVERNOR SAYS “RAISING RATES IS UNTHINKABLE.” THAT’S BECAUSE INFLATION IN JAPAN HAS BEEN BELOW THE 2% TARGET FOR YEARS, A FAR CRY FROM WHAT THE U-S IS FACING NOW. BUT THE EUROPEAN CENTRAL BANK ALSO SAYS NO TO RATE HIKES THIS YEAR – TAKING A GAMBLE THAT ITS 5% INFLATION WILL GO DOWN ON ITS OWN WHEN THE SUPPLY CHAIN SMOOTHS OUT. THE U-S FOR ITS PART – SEES INFLATION DIPPING BELOW 3% BY THE END OF THE YEAR, BUT NOT WITHOUT MOVES BY THE FEDERAL RESERVE TO REVERSE TWO YEARS OF PANDEMIC POLICIES. I’M SIMONE DEL ROSARIO. FROM NEW YORK, IT’S JUST BUSINESS.