Effects of the Fed’s decisions in Latin America

The decisions of the US Federal Reserve (Fed) exert a direct influence on the monetary sector of Latin American countries.

If the organization maintains or lowers interest rates, Latin American stock markets react in different ways, but always affecting investments, imports, exchange rates, among other financial repercussions.

Like a domino effect, this influence of the Fed’s decisions in Latin American countries directly affects the daily lives of millions of people.

Specifically, “when the Fed decides to raise its interest rates, the cost of money in the United States becomes more expensive. This has an immediate impact on the flow of capital globally.” Investors typically turn to repatriating their funds to the U.S. as a way to increase returns and reduce risks. For Latin America, as “money leaves the region, local governments and companies have more difficulty obtaining financing.”

On the other hand, pressure on exchange rates is reflected in the devaluation of Latin American currencies. Consequently, the phenomenon “makes imports more expensive, from consumer products to essential inputs for industry,” which translates into increased inflation due to the rise in the prices of imported goods.

Regarding domestic growth, in Latin America it is slowed by the rising cost of credit. “Private investment, a key driver of growth, is contracting. Infrastructure projects, technological innovation, and the creation of new companies are slowing, affecting job creation.”

Consumption is also affected, since the devaluation of the local currency and rising prices reduce household purchasing power. Households are limiting spending, which impacts domestic demand, an essential component of GDP growth.

M.Pino

Source: cointelegraph

(Reference image source: José Casado on Unsplash)

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