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The Fed’s aggressive rate hike will further raise our inflation rate!

23/09/2022

As expected, the Federal Reserve announced a 0.75% interest rate hike in the early hours of September 21, Malaysia time.

 

With the Federal Reserve (FED) raising interest rates by 0.75% for the third consecutive time, the US federal funds rate has now increased to a target range of 3% to 3.25%, the highest level since 2008.

 

The Fed also hinted at several more significant rate hikes when it announced its rate hike policy, even though these hikes may increase the risk of recession. The Fed has 2 more rate hikes this year, in November and December.

 

The Fed is generally expected to raise interest rates by 0.75% in November and 0.25% to 0.50% in December, which means rates will be between 4% and 4.5% at the end of this year.

 

Under the Fed’s aggressive rate hike, there is a strong dollar, emerging market currencies have depreciated significantly in relative terms. As of September 22, the Malaysian dollar has come to a level of 4.57 against the U.S. dollar. If the Fed continues to raise interest rates, it would not be surprising to see the RMUSD exchange rate break 4.60, or even 4.80.

 

The Fed has raised interest rates sharply, which has led to Bank Negara Malaysia being forced to follow the Fed’s pace of rate hikes. Bank Negara may raise interest rates by another 0.25 to 0.50% in November, by which time lending rates will surely follow.

 

Our inflation rate has come to 4.40% in July. The strong dollar and the weak Malaysian dollar will cause our imports to become more expensive and our inflation rate will definitely continue to rise in the next few months.

 

Now we can only be prepared to do everything we can to invest smartly and diversify our risks.

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