US’s Fed and Pakistan’s dilemma

A Dawn commentary says the US Federal Reserve faces a hard choice, as tariff policy under President Trump and the Middle East war have raised energy costs and slowed hiring. Price pressures are still running far over the central bank's 2pc goal, with July producer prices up 4.7pc from a year earlier. Nine members of the Federal Open Market Committee backed holding the rate at 3.50 to 3.75pc, three favoured a quarter-point rise, while no member pushed for a cut.

Elevated US rates tend to pull money out of developing economies and weigh on their currencies, particularly when global growth is soft. The commentary places Pakistan nearer the exposed end of that range, since reserves are being rebuilt mainly through new borrowing and external debt remains heavy. Speakers at a Pakistan Banks' Association conference said prolonged high US rates would keep the country's own borrowing costs elevated, complicating the commercial financing part of the IMF programme.

A firmer dollar would also make existing external debt more expensive in rupee terms, and continued Gulf tensions could keep oil elevated. The writer says a cut driven by falling inflation would be welcome, whereas one prompted by a US downturn would not. On this view, costly global capital should be the planning anchor over the medium term, and Pakistan's priorities are reserves, current-account discipline, export growth and concessional financing.