The Federal Reserve and other central banks risk pushing the global economy into recession followed by prolonged stagnation if they keep raising interest rates, a United Nations agency said Monday. The warning comes amid growing unease about the haste with which the Fed and its counterparts are raising borrowing costs to contain surging inflation, the Wall Street Journal reported.
In its annual report on the global economic outlook, the United Nations Conference on Trade and Development (UNCTAD) said the Fed risks causing significant harm to developing countries if it persists with rapid rate rises. The agency estimated that a percentage point rise in the Fed’s key interest rate lowers economic output in other rich countries by 0.5%, and economic output in poor countries by 0.8% over the subsequent three years.
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“There’s still time to step back from the edge of recession,” UNCTAD Secretary-General Rebeca Grynspan said. “We have the tools to calm inflation and support all vulnerable groups. But the current course of action is hurting the most vulnerable, especially in developing countries and risks tipping the world into a global recession.”
In a subsequent news conference, Fed Chairman Jerome Powell said the central bank does take account of the impact its policies have on the rest of the world but would continue to lift interest rates to bring inflation under control. “We are very aware of what’s going on in other economies around the world, and what that means for us, and vice versa,” he said. “The forecast that we put together, that our staff puts together and that we put together on our own, always take all of that—try to take all of that into account.”
UNCTAD said rather than increase rates, which will do little to ease shortages of energy and food, policy makers should focus on measures that target price spikes directly, including price caps funded by one-off taxes on the unusually large profits being made by many energy companies.
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