Today’s actions of the Federal Open Market Committee (FOMC) of the Federal Reserve were bad news for the world economy—particularly the developing nations’ economies—and bad news for small and medium-sized businesses in the United States. The FOMC announced an increase of 0.5% in the federal funds rate, to the range of 4.25-4.5%. But in addition the so-called “dot-plot” of its members’ intentions for further increases in that rate averaged out to 5.1%, higher than in previous months’ meetings and indicating they planned to go up by almost another full percent. Finally, Federal Reserve Chairman Jerome Powell said in his press conference following the release, that the federal funds rate would have to be held at “restrictive levels” (restrictive of economic activity and particularly wage increases) “for some time into the future” until the FOMC is collectively confident that the rate of inflation is returning to 2%(!).
This “higher for longer” formula means that the destructive effects of Fed policy on developing nations—rapidly increasing their debt burden, devaluing their currencies, and restricting or in extreme cases cutting off their imports—will continue and may get worse.
