The U.S. Federal Reserve’s first steps towards monetary tightening render emerging markets dependent on the dollar vulnerable. The first among them is Turkey, the Wall Street Journal reported. Turkish President Recep Tayyip Erdoğan, who has sacked three central bank governors since July 2019, is expecting the bank’s latest chief to heed his demands to cut interest rates. But any rate reduction threatens further weakness for the lira, which has already come under pressure due to high inflation and waning investor confidence, the Wall Street Journal said on Wednesday. Signs that the Fed will raise interest rates encourage dollar buying and makes it more expensive for Turkey’s government and heavily indebted corporates to repay foreign currency loans. Officials at the Fed signalled on Wednesday that they expect to raise interest rates by late 2023, sooner than previously anticipated. A move towards tighter monetary policy in the United States “would be a huge negative surprise for markets and very negative for emerging market assets,” said Daniel Wood, a portfolio manager at William Blair Investment Management, according to the Journal. “Turkey would likely suffer disproportionately given its reliance on strong risk sentiment from international investors.” The lira hit a record low beyond 8.8 per dollar at the start of June, when Erdoğan said it was imperative that the central bank cut interest rates to lower costs for businesses. He said he expected the reduction in July or August. Turkey’s central bank says it will keep interest rates, currently at 19 percent, higher than annual inflation and expectations for future inflation. It has not provided further details. Inflation in Turkey unexpectedly slowed to 16.6 percent in May from 17.1 percent in April. The central bank’s monetary policy committee meets on Thursday to decide on interest rates. Further meetings are planned for July 14 and Aug. 12. The lira fell 0.3 percent to 8.63 per dollar in morning trading in Istanbul. The central bank kept interest rates at below inflation for most of last year to help the government engineer a borrowing boom and to stimulate economic growth. The policy backfired, leading to higher inflation and steep losses for the lira, prompting the bank to spend tens of billions of dollars of its foreign currency reserves defending it.