The Impact of U.S. Monetary Policy on African Economies

The global economy operates under cyclical phases of monetary tightening and easing, often contrary to the business cycle. In periods when business activity reaches its lowest ebb and teeters on the edge of recession, expansionary monetary policy is implemented to redirect this downward trajectory, averting a slide into economic contraction. This approach prevents the economy from experiencing a sudden surge in growth, which could push it toward unsustainable heights. Conversely, contractionary monetary policy is deployed to rein in unchecked growth, preventing it from spiralling into inflationary pressures that could erode economic progress and deplete citizens' savings. By tempering both extremes, monetary policy strives to maintain a stable path of moderate growth that ensures long-term national economic health without tipping into volatility or stagnation.   Monetary policy tools tend to operate similarly across global economies, with one critical exception: the influence of the U.S. Federal Reserve. The Fed’s actions transcend the U.S. market, shaping global financial conditions. For instance, a decision to hike interest rates in the United States has far-reaching effects on consumer spending globally, even if these impacts manifest indirectly. This global ripple is acutely felt in African nations, where populations are particularly vulnerable to the consequences of U.S. monetary tightening, notably during interest rate hikes. This analysis, therefore, seeks to explore the relationship between the Federal Reserve’s tightening of monetary policy over the past three years and the subsequent waves of instability that have spread across the African continent. These effects continue to play out at the time of writing, despite recent signals that the Fed may shift once again toward a more expansionary stance.