The Impact of the Continued U.S. Interest Rate Increase and China's Response— An Analysis Based on the Case of Typical Developing Countries

Abstract

The Fed's announcement of an increase in the federal funds rate has caused a global trend of interest rate hikes, resulting in the return of the U.S. dollar and global currency depreciation, making it the most important economic phenomenon in 2022. The subject of this paper is to analyze the economic impact of the Fed's interest rate hikes on developing countries, and this paper uses data from government portals in several developing countries to further study the response of each country and to identify possible solutions for developing countries to deal with the problem of interest rate hikes. The study finds that the Fed's interest rate hike has caused capital outflows, exchange rate depreciation, and increased financial risks, which are limited in scale, and the status of international settlement of RMB's currencies still needs to be improved. In order to support the stability and healthy development of China's financial system and currency in light of the current complex international situation, it is important to increase the implementation of prudent monetary policy, maintain independence and autonomy, strengthen macro-prudential regulation, stabilize the RMB exchange rate, and implement proactive fiscal policy.