Global Implications of Rising Interest Rates in the United States

Markets around the world are watching the United States Federal Reserve Bank and its anticipated move to increase interest rates in the United States this afternoon. The Fed is widely expected to increase interest rates by .25 points today. For seven years, interest rates in the United States have been kept near zero in an effort to stimulate the economy. While inflation remains well below the Fed’s two percent target and unemployment is falling, albeit slowly, markets are watching for the Fed’s statement to signal whether it will continue to increase rates in 2016.

The US Federal Reserve’s Open Market Committee sets national monetary policy, largely by setting its benchmark interest rate on which many other interest rates in the country are based. But the interest rate has wide-ranging implications for the global economy. An increase in the Fed rate would likely result in an increase in the value of the US dollar relative to other global currencies, making US exports less competitive abroad. Because oil is priced in US dollars, an increase in the value of the dollar could make oil more expensive for other countries by increasing its price relative to local currency values. It would increase the cost of borrowing for both private individuals and countries.

What do you think? What are the likely impact of an increase in interest rates in the United States on the US economy and economies around the world? Should the Fed increase interest rates? Why?

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