The Macro Report | November 2018

The Fed’s interest-rate gamble


Global economic growth remains vulnerable in the face of escalating trade tensions, higher interest rates, and volatility among emerging markets. But there are no early signs of a recession. While the nine-year U.S. economic expansion is poised to continue through the end of 2018, growth is likely to slow in 2019 as the stimulus from the tax cuts wanes. The Federal Reserve may be tightening monetary policy too much and too quickly, and further increases in interest rates may adversely impact the economy. President Donald Trump has criticized Fed Chairman Jerome Powell for the hikes and blamed an “out of control” central bank for the worst stock market sell-off since November 2008. The key question is if a policy mistake is unfolding.

In China, an escalating trade war with the United States, slowing growth and rising debt are weighing on the economy. The currency has weakened and is hovering near a 10-year low against the dollar. There is risk the U.S. administration may overtighten the screws on Beijing, raising the specter of a sharper Chinese downturn. Meanwhile, in Brazil, Jair Bolsonaro won the presidency in a runoff vote in October, signaling a shift to the far right. He inherits an economy hobbled by low growth and high debt.


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Global economic growth remains vulnerable in the face of escalating trade tensions, higher interest rates, and volatility among emerging markets.