US monetary policy and Asia’s economic future

Author: Cyn-Young Park, ADB

Russia’s invasion of Ukraine and the subsequent energy price fallouts are testing Asia’s economic and financial resilience. Recent surges in global oil prices have fuelled inflation concerns and SWIFT sanctions have driven demand for US dollar liquidity. Meanwhile, the US Federal Reserve (Fed) has increased interest rates for the first time since 2018 to curb inflation.

COVID-19 has left a large imprint on the Fed’s balance sheet. Since early 2020, it has pumped liquidity into the financial system to cushion the impact of fiscal stimulus on interest rates. Its balance sheet has ballooned to nearly US$9 trillion from a pre-COVID-19 pandemic level of US$4 trillion.

On 16 March 2022, the Fed raised interest rates from 0.25 per cent to 0.5 per cent. The US economy continues to show resilience with a strong labour market despite the war in Ukraine and high energy prices. Given the elevated inflationary pressures, the Fed will…

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