Thursday, October 6, 2022

What happens when US interest rates rise?

A rise in US interest rates puts less developed countries with $ denominated debt in a dilemma: 
  • If they don't raise rates, their currencies devalue as the US becomes a more attractive place to invest.  This resulting $ appreciation makes it harder to pay back $ denominated debt.
  • If they do raise rates, their currencies don't change, but high interest rate slows their domestic economies.
Reuters reports that countries are raising rates to keep their currencies strong which means low inflation, but at the cost of lower incomes, and unemployment.
HT:  Cramer

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