The decision by the U.S. Federal Reserve to postpone the anticipated reductions in interest rates to later in the year, owing to inflation surpassing forecasts, is expected to decelerate the flow of foreign investments into Emerging markets, adversely affecting the Kenyan currency.
During its recent session, the U.S. Fed maintained the interest rates steady between 5.25% and 5.5%, marking the sixth consecutive meeting without change.
Merely six weeks prior, Jerome Powell, the Fed Chair, along with his team, had forecasted three reductions in the rates for the current year.
However, this prediction is now questionable. Recent economic indicators, which have been unexpectedly robust, have provided no justification for the Fed to lower the rates, especially after the significant rate increases over the preceding two years.
Delayed Rate Cut to Hurt Borrowing in Emerging Markets
Powell has dismissed the likelihood of raising interest rates at the upcoming June meeting.
“The prospect of our next move being a rate hike seems improbable,” stated Powell.
Speaking at the release of the High Net Worth Individuals report on Tuesday, Knight Frank CEO Mark Dunford said emerging markets are likely to experience reduced inflation rate as all markets look to the US.
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“HNWI will be investing in platforms that return yields in line with interest rates or stronger returns than if you were to borrow at such a stronger interest rate.
This, according to Dunford, there’s going to be less borrowing in these markets.
Knight Frank hopes the rates will come down once the Fed lowers its rates “hopefully in the next six months.”
Previous Rate Cuts By Fed
The past year has seen volatile predictions for interest rate futures, with estimates varying from two to as many as six cuts.
The Fed’s strategy, which is focused on controlling inflation, might restrict the influx of U.S. dollars into Kenya, significantly influencing the Shilling.
The mix of dwindling economic growth and unyielding inflation heightens the danger of stagflation, an outcome the Federal Reserve is striving to prevent.
