Wilmington Trust chief economist Luke Tilley and Fitz-Gerald Group chief Keith Fitz-Gerald discuss how the stock market will perform in Q4 and whether the Fed will continue to hike rates on the Claman Countdown .
The Federal Reserve and other major central banks risk triggering a painful global recession, followed by a period of stagnation with such aggressive rate hikes, a United Nations agency warned on Monday.
In its annual report on the global economic outlook, the United Nations Conference on Trade and Development (UNCTAD) said that rate hikes and austerity in wealthy countries represented an “imprudent gamble” that could backfire, particularly for lower-income countries.
“There is still time to pull back from the brink of recession,” said UNCTAD Secretary-General Rebeca Grynspan. “We have the tools to calm inflation and support all vulnerable groups. But the current approach harms the most vulnerable, particularly in developing countries, and risks plunging the world into a global recession.”
The agency estimates that a one percentage point increase in the Fed’s interest rate would reduce economic output by about 0.5% in other wealthy countries and by about 0.8% in poor countries over the next three years. Lower-income countries will already experience a slump in economic output of around $360 billion over the next three years due to the Fed’s rate hikes so far this year.
THE FED’S WAR ON INFLATION COULD PAY $1M JOBS COSTS
Federal Reserve Chairman Jerome Powell arrives to address a news conference following a meeting of the Federal Open Market Committee September 21, 2022 in Washington, DC. (Sarah Silbiger/Bloomberg via Getty Images/Getty Images)
“Excessive monetary tightening could usher in a period of stagnation and economic instability,” UNCTAD said in a statement accompanying the report. “Any belief that they (central banks) will be able to bring prices down by relying on higher interest rates without triggering a recession is an unwise gamble, the report says.”
The Federal Reserve has taken one of the fastest courses in history to raise borrowing costs and slow the economy.
Officials last week approved a third straight 75 basis point rate hike, lifting the Federal Funds Rate to a range of 3.0% to 3.25% — near hawkish levels — and hinted that more outsized hikes are ahead.
Expectations are growing on Wall Street that the Fed will trigger an economic downturn as it hikes interest rates at its fastest pace in three decades to catch runaway inflation.
Economic growth was already contracting in the first two quarters of the year, with gross domestic product – the broadest measure of goods and services produced in a country – contracting 1.6% in the winter and 0.6% in the spring.
The Federal Reserve has taken one of the fastest courses in history to raise borrowing costs and slow the economy. (Kevin Dietsch/Getty Images/Getty Images)
Fed Chair Jerome Powell has all but conceded that the Fed’s rapid rate hikes will plunge the economy into recession, warning that higher rates will cause economic “pain”.
“The chances of a soft landing are likely to diminish to the extent that policies need to be more restrictive or longer restrictive,” Powell told reporters in Washington in September. “Nevertheless, we are committed to bringing inflation back to 2%. We believe that failure to restore price stability would mean far greater pain.”
New government data released last week showed that the Fed’s favorite indicator of inflation, known as the Personal Consumption Expenditure (PCE) Index, rose more-than-expected in August, suggesting underlying inflationary pressures remain strong.
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The PCE index, showing core prices excluding food and energy, rose 0.6% month-on-month and rose 4.9% on a yearly basis, according to the Commerce Department.