U.S. Federal Reserve raises interest rates for third time in 2018 on September 26

On September 26 the U.S. Federal Reserve raised its federal funds rate target range by a quarter of a percentage point to 2.00%-2.25%. It was the third hike in 2018 and the seventh in the last eight quarters. The increase once again drew criticism from President Donald Trump, who has complained that these actions are countering his efforts to boost the U.S. economy. The Federal Reserve still foresees another rate hike in December, three more in 2019, and one increase in 2020.

Rising U.S. interest rates will increase the burden of paying dollar-denominated debts around the world. In particular, government debt in emerging-market countries will become less attractive, causing many governments to face higher borrowing costs. Such is the case of Argentina, whose government has already turned in May 2018 to the International Monetary Fund (IMF) for a 50 billion loan after seeing a failing ability to find willing lenders in the global markets. Considering the further expected rate increases by the Federal Reserve, the impact on emerging economies will also gradually rise and may lead additional countries to take unpopular measures or worsen fiscal responsibility, both scenarios that can lead to increased political instability in the mid to long term.