fed fed kinh tế vĩ mô how willan increase in interest rates change by the fed impact the economy of vietnam

VIETNAM NATIONAL UNIVERSITY HO CHI MINH CITY UNIVERSITY OF ECONOMICS AND LAW FACULTY OF ECONOMICS Subject: MACROECONOMICS ESSAY: HOW WILL AN INCREASE IN INTEREST RATES CHANGE BY THE FED

VIETNAM NATIONAL UNIVERSITY HO CHI MINH CITY UNIVERSITY OF ECONOMICS AND LAW

FACULTY OF ECONOMICS

Subject: MACROECONOMICS

ESSAY: HOW WILL AN INCREASE IN INTEREST RATES CHANGE BY THE FED IMPACT THE ECONOMY OF

VIETNAM?

Lectuter: M.A Huynh Thi Ly Na

Ho Chi Minh City, May, Leek 14906

Class: K22403 Members of Group 1:

Le Nguyen Thuy An — K224030332

Huynh Thi Phuong Thao — K224030389 Truong Thi Hoang Ha — K224030348 Nguyen Phan Hoang Oanh - K224030380

Vo Anh Nhat Quynh — K224030385 Dinh Thi Na — K224030370

Tran Xuan Nghi — K224030373 Hoang Thi Thu Hien — K224030373

EVALUATION FOR COMPLETION OF ASSIGNED WORK

l Le Nguyen Thuy An K224030332

2 Huynh Thi Phuong Thao K224030389

3 Truong Thi Hoang Ha K224030348

4 Nguyen Phan Hoang Oanh K224030380

5 Vo Anh Nhat Quynh K224030385

7 Tran Xuan Nghi K224030373

8 Hoang Thi Thu Hien K224030350

ACKNOWLEDGEMENT

First of all, we would like to express our sincere thanks to M.A Huynh Thi Ly Na, lecturer of Macroeconomics at the University of Economics and Law

In the process of studying and researching Macroeconomics, we have received your enthusiastic teaching and valuable guidance During the time attending your class,

we have had access to a lot of useful and necessary knowledge for future study and work,

However, our essay still has some shortcomings due to limitations in our knowledge and understanding Through this, we once again look forward to receiving your feedback so that we can improve our knowledge more and more

Lastly, we wish you good health, happiness, and continued success in both your career and personal lives

Sincerely,

Student of Group 1

TABLE OF CONTENTS EVALUATION FOR COMPLETION OF ASSIGNED WORK

L.L An Overview ofthe Fed cee cen cee tn eee cee ee nh kh Hy thư ky 1.2 The Federal Reserve”s functIons cào cà co cà nà kh He CHAPTER 2: THE PRESENT STATE OF THE VIETNAM’S ECONOMY 2.1 The Economy of Vietnam 1n 2022 cà 2.2 The economy of VN In 2023 cee nen ee be ben bebe kh hà CHAPTER 3: THE IMPACTS OF THE FED INTEREST RATE ON

3.1 The reasons for the Fed's interest rate hike 2.000 eect enter 3.2 The impacts of the Fed Interest rate on Vietnam 3.2.1 On the negative side 0.0 ee ee cee ee ne cn e cre cece einen need 3.2.2 On the positive side 0 eee ee ee ee ee ne ne ne ne ee cae tae eae tae 3.3 Solutions 2.0.0.0 — ——— ằn< CHAPTER 4: CONCLUSION PARAGRAPH

ABBREVIATIONS

1H

CHAPTER 1: FED 1.1 An Overview of the Fed

The Federal Reserve System, or Fed, is another name for the Federal Reserve, which serves as the country's central bank On December 23, 1913, it was founded President Woodrow Wilson established the Fed in accordance with the

"Federal Reserve Act" to uphold a flexible, secure, and safe monetary policy for the United States

The US government has no influence on, dependence on, or control over the Fed The only company in the world with permission to print US dollars is this one

As a result, the Fed is crucial in both planning and modifying monetary policy The market and investors will be immediately impacted by the Fed's changes to interest rates and the money supply

The current chairman of the Board of Governors of the Fed is Jerome Powell

Pic 1.1 Jerome Powell ( Source: Internet)

1.2 The Federal Reserve’s functions

The Federal Reserve Act, as revised in 1977, outlines the Fed's monetary policy role and includes the following essential responsibilities:

Implement national monetary policies by giving Americans a place to work, bringing about price stability, and making proper long-term adjustments to interest rates

Preserve economic stability and manage systemic risks that can develop in the financial markets Reduce prices of goods and services to promote economic expansion

Monitoring financial institutions while preserving the stability of the credit rights of individuals and the financial safety system

Offers financial services to the US government, important asset managers, and international official entities The Fed is crucial to the operation of the country's payments system

CHAPTER 2: THE PRESENT STATE OF THE VIETNAMESE

ECONOMY

2.1 The Economy of Vietnam in 2022

Vietnam's economy is currently growing rapidly, and the

pandemic is under control, creating good conditions for socioeconomic

recovery and progress

Vietnam's macroeconomic performance in 2022 was very impressive:

* GDPreached $409 billion, up 8.02% from the previous year

® CPI increased by 3.15% compared to 2021, meeting the National Assembly's objective

e The total import-export turnover is 732.5 billion USD, with a trade surplus of 11.2 billion USD (up from 3.32 billion USD last year)

Although many major economies are still experiencing galloping inflation in 2022, Vietnam is still successfully controlling inflation

Budget surplus: overall state budget expenditure reached VND 1,562.3 trillion, 87.5% of the estimate and an 8.1% increase over the previous year The state budget surplus for the entire year reached 222.5 trillion VND, thanks to several receipts exceeding expectations

2.2 The economy of VN in 2023

The year 2023 is essential for accomplishing the Five-Year Plan 2021-2025 targets Meanwhile, the global situation remains fraught with peril and difficulty The country is still facing challenges, and the economy's ability to withstand and adapt remains restricted If the challenges are not addressed appropriately, the country's position would decline; thus,

effective solutions to overcome challenges and establish a creative economy are vital

CHAPTER 3: THE IMPACTS OF FED INTEREST

RATE ON VIETNAM

3.1 The reasons for the Fed's interest rate hike

The US economy is suffering from excessive inflation as the COVID-19 outbreak disrupts supply networks

According to the US Bureau of Labor Statistics, the Consumer Price Index (CPI) climbed by 8.6% in May 2022, causing US inflation to rise dramatically by 8.6%, the highest pace since December 1981 Because of the overheating of the

US economy, the Fed decided to raise interest rates in order to help the US economy return to equilibrium and lower the inflation rate

The COVID inflation surge

COVID state of emergency dectared

( Source: Bureau of Economic Analysis, St Louis Federal Reserve)

3.2 The impacts of Fed interest rate on Vietnam

3.2.1 On the negative side

e Interest rates in Vietnam rise: As the Fed raises interest rates, the USD becomes more appealing to investors, while the Vietnamese dong loses value In response to this situation, the State Bank increased its operational interest rate in an attempt to stabilize the exchange rate and contain inflation

® USD exchange rate rise: When the Fed adjusts interest rates repeatedly in a short period of time, the USD appreciates substantially more than other currencies, leading the value of the local currency to decline more than the USD That is, if the State Bank does not act to raise interest rates, it will result in a situation in which people "sell VND to buy USD."

¢ Increase in the national debt: The majority of international debts are payable in USD; as the Fed raises interest rates, debt rises in tandem with the exchange rate and USD interest rates This will have an impact on the government's income and expenditure balance, as well as fiscal policy decisions

¢ Demand for Vietnam's export goods in other countries decreased: As interest rates rise, both domestic and foreign consumers, as well as businesses, tighten their belts, resulting in a decrease in consumer demand for goods The decline in spending will result in a decrease in demand for goods, with a two-way influence on the consumption of Vietnamese goods abroad as well as items imported from abroad into Vietnam

3.2.2 On the positive side

In general, regarding the global economic environment, Vietnam may

be stated to be a country that has been and is well minimizing the impact of the Fed's program to restrain inflation Vietnam wants to boost commodity exports in the face of a strong appreciation of the US dollar against the local currency due to an unexpected interest rate hike by the Fed Most of Vietnam's exports are basic items such as agricultural products, seafood, and apparel These commodities are essential in daily life and their prices remain fairly stable and less affected by interest rates As a result, Vietnam's exports can grow

3.3 Solutions

Dealing with continually varying global interest rates, the government has taken steps to adapt, avoid negative consequences, enhance economic growth, and, most importantly, limit inflation

Increase in Regulatory Interest Rate: To relieve pressure on exchange rates and stabilize lending interest rates, the State Bank has established a policy of raising regulatory interest rates At the same time, contributes to the work of inflation stabilization and control

Increase in credit: The State Bank assists businesses and individuals in meeting their financing needs To reach the ultimate goal of contributing to economic growth, obstacles in credit and capital mobilization must be removed

Innovation in government policy: To assist Vietnam's economy in developing, the government should implement policies and decisions that are

in keeping with the challenges and opportunities Furthermore, the government should encourage businesses and credit institutions to innovate and develop technology in order to effectively develop business operations, and production, and reduce production costs

CHAPTER 4: CONCLUSION PARAGRAPH

The Fed's interest rate hike impacts not only the United States but also other countries, like Vietnam For a developing country like Vietnam, the Fed's interest rate hike is both an opportunity and a challenge The government and state banks should think about making good judgments and policies to enable Vietnam's economy to recover and grow rapidly

REFERENCES

[1] Bao Anh, 23/09/2022, FED lai tang lai sudt dé “diét” lam phdt,

https://s.net.vn/xvk5

DNSE Team, 24/10/2022, ED tăng lãi suất ảnh hướng đến Uiệt Nam như thể

nao?, https://www.dnse.com vn/hoc/fed-tang-lai-suat-anh-huong-den-viet-

nam-nhu-the-nao

[2] Vietnam+, 04/08/2022, FED tang Idi suất sẽ tác động tới kinh tế Việt Nam

ra sao?, https://www.vietnamplus.vn/fed-tang-lai-suat-se-tac-dong-toi-kinh- te-viet-nam-ra-sao/809315.vnp

[3]Theo Dinh Thom, 16/09/2022, Kha ndng FED tdng Idi suất và tác động

t6i kinh té Viét Nam,https://cafef.vn/kha-nang-fed-tang-lai-suat-va-tac-dong-

toi-kinh-te-viet-nam-20220916181828069.chn

[4] Lé Thi Thuy Van, 30/01/2023, Lam phat thé gidi năm 2022 và tác động đến Viét Nam, https://mof.gov.vn/webcenter/portal/vclvcstc/pages_r/I/chi-tiet- tin?dDocName=MOFUCM263689