(Analysis) Jerome Powell, Chairman of the U.S. Federal Reserve, recently announced that U.S. interest rates might stay high for longer, complicating global monetary policy.
Made on Tuesday, this announcement predicts delays in anticipated rate cuts due to ongoing high inflation.
This change from Powell’s earlier statements has driven U.S. Treasury yields up and strengthened the dollar, challenging the global financial environment.
At the International Monetary Fund (IMF) and World Bank meetings in Washington, world leaders encountered new monetary policy challenges.
The European Central Bank (ECB), Bank of England (BoE), and Reserve Bank of Australia (RBA) face the risk of currency depreciation if they start easing cycles, which could raise import costs and hinder inflation efforts.
Avoiding easing could, however, harm economic growth.
Lucy Baldwin, Citigroup’s Global Head of Research, highlighted the dangers of prolonged high rates on Bloomberg TV.
She noted that delaying rate cuts could significantly threaten global economic stability.
In Asia, financial tensions are escalating. The Japanese yen has dropped to a 33-year low, possibly forcing Bank of Japan Governor Kazuo Ueda to raise interest rates from historic lows.
In China, increasing pressures on the yuan might prevent rate reductions.
Global Central Banks Constrained by Steady U.S. Interest Rates
Emerging markets are also under pressure as the dollar’s rise complicates economic management.
Last October, the Indonesian Central Bank had to raise rates due to sustained currency weakness.
With the rupiah surpassing 16,000 for the first time in four years, further rate increases seem likely.
Economists now expect fewer rate cuts in regions from Malaysia to Vietnam.
Brazil faces similar challenges. Uncertainties about interest rate cuts and fiscal issues have pushed the dollar near R$5.30.
Analysts now believe Brazil’s Central Bank may soon pause its rate cuts, potentially as early as June.
This situation underscores the complex links in international monetary policy and the critical balance central banks must maintain amidst variable economic pressures.