News Digest: Expect more Fed rate hikes in December
November 4, 2022
Fed chair Jerome Powell appears set to hike interest rates faster and higher over the near term as part of his efforts to rein in inflation rates, which stood at 7.75% for November, compared to 8.2% a month ago. Brownstone Research expects another raise of up to fifty basis points in December and January.
There is growing concern in the market that this pace of rate hikes could break something within the global financial system. For starters, the US dollar has strengthened to a two-decade high relative to other global currencies, and in the past this has resulted in a debt crisis. In the early 1980s, a strong dollar had contributed to the Latin American debt crisis.
Another concern stemming from the rate hikes is that the US could face a sovereign debt crisis. US government debt stands at $31 trillion now and new spendings proposed under the Inflation Reduction Act could add another $737 billion to this number, forcing the Biden administration to finance this spending with the sale of US Treasury bonds.