US Fed Rate Hike Will Test Emerging Markets

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US Fed Rate Hike Will Test Emerging Markets

US Fed Rate Hike Will Test Emerging Markets by Dan Steinbock by Dan Steinbock, Difference Group

In the multipolar world economy, the Fed’s unilateral actions contribute to
diminishing global growth prospects.

The US Federal Reserve raised interest rates by 25 basis points last week, taking the first step away from its near-zero interest rate policy. Led by its chairman Janet Yellen, the Fed sought to defuse market tensions by signaling a “gradual” pace of rate hikes to come. Yet the Dow plunged 367 points, while the S&P 500 and the Nasdaq lost 1.5 to 2 percent.

In the United States, rising rates will reward investors but increase the borrowing costs for consumers amid the earnings and revenue slump, and sluggish growth. At the Fed, concerns linger over China’s growth slowdown. Besides, rate hikes will reinforce the sharp plunge of energy prices, while sending the US dollar climbing. So, what will be the impact on China?

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The impact of the Fed’s rate hikes on China

When the Fed began its rate hikes about a decade ago, the Chinese economy was about one-fourth of what it is today and its financial markets were largely insulated from the outside world. These privileges are now gone. Today, China is the world’s second-largest economy and the renminbi has been included in the International