The European Central Bank is poised to raise interest rates for the first time in 11 years on Thursday. The expected hike would follow moves last week by central bankers in Canada, who increased rates by a full-percentage point, and in the Philippines, who upped them by a surprise 0.75 percentage point.
Interest rates have been climbing around the world since December as policymakers attempt to rein in rising prices. As the US Federal Reserve steps up its own hikes, economists expect the rest of the world to follow suit.
Except other countries won’t be able to hike quite as fast as the Fed, which has more leeway thanks to the US’s strong labor market. Europe, for example, is reeling from supply shocks related to Russia’s invasion of Ukraine, while China’s economy grew at the slowest rate in 30 years in the second quarter.
What the Fed’s rate hikes mean for the rest of the world
The rapid pace of the Fed’s hikes, alongside recession fears, has boosted the value of the dollar against the euro and other currencies. That’s making American exports more expensive for other countries—and further inflating local prices.
As a result, the global economy is at risk of sinking into what is known as a “dollar doom loop“, a situation in which the strong dollar slows down economic activity, which in turns makes the dollar even more expensive.
The rising cost of borrowing around the world is going to hit heavily indebted countries and squeeze the budgets of rich countries that have enjoyed low interest rates for a decade. Here’s an overview of where rates are now: