The Fed's plan to raise interest rates could increase unemployment and set the stage for lowering wages.
The U.S. GDP composes 25 percent of world GDP, and the country has important trade relations with almost every country. For dependent countries in regions like Latin America, the Fed’s moves to curb inflation threatens to have serious international ramifications, exacerbated by an increasing subordination to the IMF.
For example, there may be slower economic growth internationally. The rate hike has already caused a decline in U.S. output prospects and could lead to a more sustained decline. This would put the same pressure on the rest of the world, endangering the jobs and incomes of millions of people, especially in the most fragile economies.
Increasing the interest rate also favors the movement of capital toward the dollar as a safe haven. This means that to dollarize, investors will reduce their holdings in local currencies, adding pressure on the demand for the U.S. currency. In fact, both the Brazilian real and the Chinese yuan have devalued by 6.3 percent in the last quarter, and the pressure on the Argentinean peso is growing. These devaluations can then cause price increases.
Finally, the Fed’s moves can increase the cost of international credit. In other words, access to credit will be restricted, and the cost of foreign debts in dollars will increase. This raises the risk of default in some emerging economies, such as Argentina. In this context, the Fed’s interest rate hikes aren’t just abstract monetary policy; they will reverberate far beyond the U.S. economy. And, as always, capitalists and their institutions are interested in self-preservation, stability, and continuing exploitation — workers and the poor, both in the U.S. and in dependent and semicolonial countries, will be forced to shoulder the burden of these measures.
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