The world’s central banks are injecting a new complication into the Federal Reserve’s decision on when to raise interest rates from record lows: They’re cutting their own rates.
A Fed rate hike that comes as other central banks are reducing theirs probably would boost the U.S. dollar’s value. A stronger dollar would make U.S. imports cheaper, lower overall prices and probably make it harder for the Fed to meet one of its mandates: lifting excessively low inflation to a healthier level.
It also would squeeze U.S. exporters by making their U.S. goods more expensive for overseas buyers. A sharp slowdown in exports would weaken the U.S. economy.
The conflicting central bank policies reflect America’s economic might compared with the sluggishness of most other major economies.
“Relatively stronger growth in the U.S. is setting the stage for higher interest rates, whereas the opposite is happening in the rest of the world,” says Timothy Duy, an economist and Fed watcher at the University of Oregon.
Last weekend, China’s central bank slashed key interest rates for the second time in three months to try to stimulate that nation’s slowing economy.
The European Central Bank this month will begin buying bonds to try to reduce borrowing rates and revive a flat-lining economy.
