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Emerging isolation on trade and interest rates

Tom Hudson hosts “The Sunshine Economy” on WLRN-FM in Miami.
Tom Hudson hosts “The Sunshine Economy” on WLRN-FM in Miami.

The United States trade policy increasingly is economically isolating. Its closest economic partners are unhappy over President Donald Trump’s tough trade positions and his “America First” economic agenda.

The U.S. monetary policy increasingly is isolating in its own way.

Expect that to continue in the week ahead when the Federal Reserve meets for a regular interest rate setting meeting. On Wednesday, the central bank is widely expected to raise its target short-term interest rate for the second time this year.

The Fed’s steady strategy of hiking borrowing costs is a marked difference from other central bankers from developed economies. While the Bank of England and Bank of Canada have signaled desires to raise interest rates to head off inflation, but it is the U.S. central bank that is doing it. The European Central Bank is just now talking about ending its strategy of buying bonds to goose the European economy. By contrast, the Fed ended its bond buying program in 2014. It has been gradually shedding those bonds from its balance sheet for the past eight months.

The path of higher interest rates has helped boost the U.S. dollar while hurting emerging market investors. The worry is that up-and-coming economies will be damaged by higher American borrowing costs, just as they could experience collateral economic damage from the trade tensions.

The Fed isn’t concerned about its role. Last month Federal Reserve Chairman Jerome Powell said he thinks slow and steady interest rate hikes by his agency “should continue to prove manageable for” emerging market economies.

Will the same be said for those economies if trade relations between America and its biggest partners remain strained?

Tom Hudson hosts “The Sunshine Economy” on WLRN-FM; @HudsonsView.