Jeremy Powell, Chair of the Federal Reserve (aka the Fed), the central bank of the United States, will be giving his interest rate decision in a few hours. It will be one of the most watched commentaries with financial market participants trying to assess whether this is the beginning of the end of interest rate hikes and eventual reduction in rates.
Recently the Fed raised its benchmark interest rate by 0.75%, the second hike of this magnitude in just two months. This move is part of the Fed’s strategy to combat inflation, which has reached record levels in the past year.
But what are the consequences of higher interest rates for the US economy and beyond?
In this blog post, we will explore some of the effects that interest rate changes have on various sectors and actors, such as consumers, businesses, government, and developing countries.
Consumers: Higher interest rates mean higher borrowing costs for consumers who want to buy a home, a car, or use credit cards. This can reduce their spending power and demand for goods and services. Higher interest rates also affect savings accounts, as they offer higher returns for savers who want to earn more on their deposits.
Businesses: Higher interest rates make it more expensive for businesses to borrow money to invest in new projects, expand production, or hire more workers. This can slow down economic growth and innovation. Higher interest rates also affect corporate profits, as they increase the cost of servicing existing debt and reduce future cash flows.
Government: Higher interest rates increase the cost of financing public debt, which is already at a high level in the US. According to one estimate, the total budget deficit from 2022 to 2031 will be $12.7 trillion . Higher interest rates also affect fiscal policy, as they limit the government’s ability to stimulate the economy through spending or tax cuts.
Developing countries: Higher interest rates in the US can have spillover effects on developing economies in several ways . First, they can reduce US demand for imports from these countries, which can hurt their export-led growth. Second, they can attract capital flows away from these countries, as investors seek higher returns in safer US assets. This can cause currency depreciation and financial instability in emerging markets. Third, they can increase borrowing costs for these countries that rely on external financing from international institutions or markets.
In conclusion, interest rate hikes in the US have significant impacts on various aspects of the economy both domestically and internationally. While higher interest rates are intended to curb inflation and maintain price stability, they also entail trade-offs and challenges for different sectors and actors.
According to the report by PWC, despite discussion on social media about the things that AI will be able to achieve, the majority of studies that have sought to answer this question have focused on the risks of artificial intelligence to employment. More recently some researchers have recognised the potential that this automation has to boost productivity,1,2 leading to more efficient production of goods, more affordable products, and higher real incomes.
Our study aims to take further steps towards capturing the full economic potential of AI and the opportunities that it presents. In addition to the more traditionally examined productivity channel, we identify and measure impacts on the household consumption side of the economy through product enhancements resulting from AI.
The power of combining AI and analytics for manufacturers
Artificial Intelligence (AI) has become one of the hottest topics in manufacturing today. The range of business and operational applications that it can be put to is almost limitless. Yet, it’s fair to say that we’re still very early in the AI adoption curve. Success with AI implementation comes through evolution not revolution. Combining AI and analytics for manufacturers can provide a natural path.
The increasing digital transformation happening within manufacturers is bringing the potential of AI into focus. IDC suggests manufacturing companies are “at the heart of a perfect storm, both living with and seeking to exploit disruptive technologies such as cloud, big data, AI-assisted analytics and the Internet of Things (IoT), while facing increasing IT security challenges, regulatory pressures and a changing workforce”.
Fintech is UK’s top tech sub-sector
Fintech is the UK’s top technology sub-sector when it comes to attracting investment, according to two new reports.The UK leads Europe in scaleup technology investments, according to the latest annual government-backed Tech Nation report, with just the US, China and India.
The UK’s strongest tech sub-sector, and where it currently ranks as number one in the world, is fintech, with investment in high-growth firms amounting to £4.5 billion between 2015 and 2018.
A separate study from Stripe and Tech.eu paints a similar picture, with fintech being the top technology vertical for investment not only in the UK but also in Germany and Sweden.
Digital payments startup Stripe says Europe is its fastest-growing market
Stripe is its name, and making it easy for companies of all sizes to take payments online or on mobile is what it strives to do.
As I noted during the video interview, which you can watch above, Stripe is far from the only company offering that type of solution, so how does it differentiate?
Collison said the big thing with Stripe is its developer-friendliness, i.e. that it gives businesses the tools to customize the payment processing workflow and check-out experience from end-to-end.
Several bilateral agreements were signed between Qatar and the UK recently with the most notable being the agreement by the Qatar Central Bank to establish the Qatar Centre for Global Banking & Finance within the King’s Business School at King’s College London.
A membership agreement was signed between the Qatar Development Bank (QDB) and Innovate Finance’s international hub to support the development of the fintech ecosystem in Qatar, as well as an agreement on the approval of the QDB’s membership to the Financial Conduct Authority’s Global Financial Innovation Network to promote Islamic finance and fintech.
The signing ceremonies were held on Qatar Day, hosted by the UK’s Department for International Trade in partnership with the City of London Corporation at the prestigious Mansion House in London on the 26th April. The event aimed at strengthening trade and investment ties between the two countries and supporting Qatar’s development of its financial services sector.
The agreements highlighted the mutual opportunities for businesses across banking, Islamic finance and fintech for UK and Qatari companies. Senior business executives of the two countries and representatives of the two governments shared reports highlighting the UK’s and Qatar’s promising mutual investment opportunities .
Qatar is one of the largest investors in the UK with more than GBP35 billion (US$45.7 billion) invested in the UK economy, and that figure is expected to continue rising. The event marks the UK’s commitment to supporting Qatar’s need to diversify its economy as part of the country’s National Vision 2030 and increasing cooperation between the UK and the Gulf State’s financial services sector.
Suhail Ahmad is a partner at Gateway Islamic Advisory. He can be contacted at [email protected].
This article was first published in Islamic Finance news Volume 16 Issue 18 dated the 8th May 2019.
Addressing the Gender Issue and Securing the Future of Fintech
The report was released alongside a panel discussion chaired by Marcus Scott (Chief Operating Officer, TheCityUK) and featuring Anne Murphy (Managing Partner, Odgers Berndtson), Professor Phil Sutton (Imperial College London), Mark Hoban (Chair Skills Taskforce) and Josh Bottomley (Global Head of Digital, HSBC).
The breakdown of stats is eye-opening. The fintech market is worth £7 billion to the UK economy, employs 60,000 people and had a year-on-year investment growth of 154% in 2017. The UK is also the leading exporter of financial services across the world, with more banks’ head offices being located in London than any other city. Given this, fuelling fintech is a tremendous responsibility.
A tug of war has emerged between finance and tech firms over who can attract the best recruits. How do you bring in top talent to finance, when you’re competing with the likes of Google, with their slides, massage rooms and sleep pods?
Blockchain Firm SETL Sidesteps Insolvency to Return as Leaner New Entity
Blockchain infrastructure firm SETL Development Ltd., which filed for insolvency in March, is back as a trimmed-down new entity formed by its management team.
The new company, SETL Ltd., said Friday that it has now acquired the operating assets, staff and intellectual property (IP) rights of the old entity. Further, the company has reached an agreement with “all major clients” to continue the firm’s previous support and development activities.
SETL Development Ltd, which went into administration in March, is now being wound down.
At the time, the the firm said it had filed for insolvency because its finances were not adequate to meet the regulatory requirements for both SETL and its ID2S central securities depository (CSD) initiative. It added it was seeking to place ID2S with “a larger financial services firm.”
Can we Trust the Machines to predict Stock Market?
If you’re one for an emotion-based roller coaster then look no further than the stock market. The ups and downs of the many forces at play on share prices have made it impossible to predict, at least for now.
Over the last few years, the decision making process about what to invest in and when has increasingly been taken on by artificial intelligence (AI). One company has even taken decision-making entirely out of human hands, launching a hedge fund making all stock trades using AI without any human intervention.