The recently released minutes of the US Federal Reserve’s October meeting signalled strongly that an interest rate increase in December is now almost a certainty. Since the summer of 2013, the world financial markets have been in suspense regarding the timing of the US interest rate rise.

The key macro-economic statistic that strengthened the Federal Reserve’s view on rate rise was the unemployment rate of 5.5 per cent, which is improving to the full-employment rate of 5 per cent. At this threshold rate, the inflationary pressures due to increasing wages are likely to be felt in the US economy and the Federal Reserve wants to avoid such a threat to a recovery that has taken almost eight years to arrive after the 2007 crisis.

Realising that the rest of the world and the global financial markets are not ready yet for a dollar interest rate increase, the Fed had kept delaying since the summer of 2013. But it kept reminding the markets that the rate rise was not a question of “if” but of “when”. This communication alone caused major corrections in assets, especially in emerging economies since the summer of 2013 with currencies plunging and capital flowing out.

The emerging economies are now mostly ready for a interest rate rise. But I do not think the Eurozone is and is likely to suffer most as the euro replaces emerging economy currencies to be the asset to speculate on by US fund managers and corporations. We have already seen Mario Draghi, President of the European Central Banking, making statements to the effect that the European Central Bank will become even more aggressive in monetary policy to revive the Eurozone economy.

I am not convinced that even the US economy is fully ready for an interest rate increase. Of course, symbolic single-digit basis point increases are not likely to cause problems. But a quarter per cent increase that we are accustomed before the 2007 crisis would damage even the US economy because the interpretation of falling unemployment rate by the Fed, as some leading economists argue, is suspect.

Economics is not an exact science and there are serious question marks over whether the recovery in the US is rooted or transient. The reported unemployment rate is low because a significant number who need jobs are no longer looking as they have lost hope of finding permanent positions with decent wages. Consequently, the labour participation rate has fallen.

Those who do search for and get jobs are being paid low wages. A double-digit increase in rates would, therefore, increase the debt servicing burden of the highly indebted and low wage households. Similarly, highly leveraged private companies too would face problems servicing debt.

The US government itself has significant sovereign debt and a double-digit increase in interest rates will increase its debt-servicing costs and put pressure on government spending. The economic recovery would be at risk from reduced spending by households, reduced investments by the private sector and government spending.

Some emerging economies too will have debt servicing problems in the private sector which can put pressure on their banking systems, thereby increasing fragility in the global economy. The growing interest rate differentials between the yen, the euro, the sterling and the dollar are likely to create uncertainties in major currency markets.

The US economy and the world economy do need a dollar interest rate increase to get back to normality after a long period of unsustainable loose monetary policy. But I do not think the US economy and the world economy are ready yet for consecutive rate increases bigger than single digit basis points. And that too needs to be done in a coordinated way between the major economies in the world and in conjunction with efforts to build a new global financial architecture.

The writer is with the Manchester Business School.