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Friday, March 29, 2024

US economy finally recovers

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The United States raised its interest rate by a quarter point Wednesday for the first time in over nine years, signaling to the world that the biggest economy is finally over the hump.

The US rate hike will have some negative repercussions on the rest of the world, including the Philippines, as the move will generally prompt other central banks to increase their respective interest rates to make their currencies competitive, and consequently increase the cost of business operations.

But the US rate hike presents a  bigger economic picture—the  American economy is doing well again and has recovered from “the worst financial crisis and recession since the Great Depression.” 

The 2008 financial crisis nearly made the US bankrupt and forced the US Fed to hold interest rates to near zero levels to support economic recovery. The ensuing rate  hike, in the words of Fed chair Janet Yellen, “takes place in the context of a US economy that is doing well, and is a source of strength to the emerging markets and other economies around the globe.”

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Yellen adds: “It also recognizes the considerable progress that has been made toward restoring jobs, raising incomes, and easing the economic hardship of millions of Americans. The first thing that Americans should realize is that the Fed’s decision today reflects our confidence in the US economy.” 

Global financial markets welcomed the US Fed move, as stocks rallied after experiencing an extended volatile period. A strong US economy should be good for Asia and the rest of the world. It gives exporters in the region, including the Philippines, a bigger opportunity to sell their goods to the US, given the improved purchasing power in the north American nation.

Philippine businessmen, meanwhile, must adjust to the new economic order. Every emerging economy will vie to increase its pie in the US market. The Philippine government, for its part, should do its share to make local products more competitive. It can start by lowering the cost of electricity, a major production cost, and improve the business climate to lure more foreign investors.

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