US Fed's Dilemma Spills Over into Emerging Markets

The Federal Reserve (Fed) is facing a dilemma as it tries to balance its goal of controlling inflation with the need to support economic growth. The US central bank has kept interest rates high, but this has not yet had the desired effect on inflation, which remains above its 2% target.

Producer prices rose 4.7% year-on-year in July, a sign that inflationary pressures are still strong. Meanwhile, the labor market is showing signs of weakening, which could make another rate hike a risk rather than a routine tightening move.

The Fed's dilemma has implications for emerging markets, including Pakistan, which is vulnerable to higher interest rates and a stronger dollar. The country's reserve-building efforts are being complicated by high US rates, which are making borrowing more expensive and pushing up the cost of servicing existing external debt.