The rise in interest rates in the USA is always an event that attracts the attention of governments and markets around the world, after all it is the largest global economy with a reference currency for business, investments and debt and with impacts even on tokenization asset.
The US Central Bank – the Federal Reserve – raised the local economy’s basic interest rate to 5.25%, the highest level in the last 22 years, and maintained a cycle of increases that brought the rate to 0.25% in March. 2022.
This succession of increases aims to curb North American inflation, cooling the economy so that price rises return to the target of 2% – the consumer price index in July 2023 was 3.2%.
What factors are stimulating successive decisions to increase the Fed Fund Rate?
What are the impacts on the Brazilian economy and the world?
BLOCKBR, a company that develops tokenization infrastructure, will talk about rising US interest rates and how this affects our lives!
WHY THERE WAS THE INTEREST RISE IN THE USA
Increasing the American interest rate is a necessary measure given the inflationary environment that the country has been experiencing for a few years, precisely since the pandemic in 2020. The recessive scenario required massive monetary and fiscal stimuli.
These measures boosted demand and revived the job market, but the context was circumstantial and needed to be reversed so that there was no further escalation in price and consumption inflation.
Successive interest rate increases would make credit more expensive and discourage economic growth supported by the emergency scenario between 2020 and 2021.
At the end of 2022 there were already signs of normalization of global production chains and the supply of inputs that contributed to the fall in inflation. However, it is still at distorted levels and a high basic interest rate is still necessary.
WHAT ARE THE IMPACTS OF THE US INTEREST HIGH ON THE GLOBAL MARKET
The impacts of high US interest rates in the world’s economies are always well known, but the size is unpredictable, as it will depend on each country’s homework – how exposed the economy is to Fed decisions and what the government is doing to try to deal with them.
We can highlight the generalized effects of the rise in the Fed Fund Rate:
CAPITAL FLIGHT TO THE UNITED STATES
This is a natural movement; Being one of the most stable economies even in times of crisis, the increase in American interest rates attracts investors to the country, combining a greater gain with the level of economic security.
As a result, the drop in the currency supply causes the price of the dollar to rise, positively affecting export revenues, but increasing the costs of sectors that depend on imports of inputs and equipment – basically commodity exporting countries such as Brazil.
What are the best investments in the scenario of falling Selic rates that we are experiencing?
DECREASE OF INVESTMENTS IN COUNTRIES
With the outflow of dollars to the US in search of better remuneration with stability, the volume of capital invested in emerging countries, which depend on these flows for projects, is reduced and, ultimately, causing a slowdown in economic growth (and recession in many cases).
POLITICAL AND SOCIAL IMPACTS
Depending on the circumstances and the response of local governments, a high Fed Fund Rate can cause serious social and political consequences – increased unemployment, economic inequality and government instability.
The exact effects will depend greatly on the responses (and their speed) to interest rate changes in the US to be adopted in the countries. Additionally, global economic and political events play an important role in the final results.
HOW THE BRAZILIAN ECONOMY REACTS TO THE US INTEREST HIGH
Contrary to what is being done by the Fed, in Brazil the Central Bank reduced the Selic, the economy’s basic interest rate, by half a percentage point in August 2023 and signals that other reductions could happen in the coming months.
This reduction is due to the slowdown in Brazilian inflation, which would create a favorable context to make credit more accessible, encourage investments by companies and individuals and, consequently, promote the resumption of growth.
The profound structural changes that are underway – the fiscal framework, tax reform and administrative reform – tend to improve the confidence of investors and entrepreneurs.
The Selic still remains at a high level and there is room for further reductions, according to experts, who predict the reference interest rate at 11.5% at the end of 2023.
Despite the positive economic scenario projected by these facts, the government should pay extra attention to the cycle of increases in the Fed Fund Rate. The outflow of capital from Brazil, in a certain volume, could become a real obstacle to economic recovery.
TOKENIZATION IN TIMES OF HIGH INTEREST IN THE US
The rise in basic interest rates in the USA, as well as the Selic rate in Brazil, profoundly changes the dynamics of investment markets. The flow of capital towards that country occurs especially in two situations: when the Selic rate falls and when the Fed Fund Rate rises.
As a result, fixed income investments lose steam and investment in variable income becomes more attractive.
But how to invest efficiently and obtain great results?
Tokenization allows investment in the most varied market opportunities, both for those who want to trade assets and obtain greater gains and for those who want options to diversify their investments with more:
- Agility, using blockchain technology;
- More security with high-level encryption, more advanced protocols and smart contracts;
- More availability, being able to invest at any time of the day and from any region of the world, without depending on bank hours.
The tokenized economy is the increasingly present transformation for investors and owners of assets, products, services and rights and investors to carry out great deals.
And qualified tokenization companies like BLOCKBR create all the high-level tokenization infrastructure necessary to achieve this goal!
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BLOCKBR Digital Assets is a fintech specialized in tokenization of assets and investments that delivers infrastructure to the regulated and non-regulated market through an All-In-One platform that offers the transformation and interoperability between assets and investors.
For more information, visit: http://www.blockbr.com.br or @blockbr_ on social networks
