UN urges Fed to pause interest rate hikes on global recession fears
Higher interest rates represent an 'imprudent gamble,' UN agency warns
Fed wants to 'crater the economy' to result in demand destruction: Keith Fitz-Gerald
Wilmington Trust chief economist Luke Tilley and Fitz-Gerald Group principal Keith Fitz-Gerald debate how the stock market will perform in Q4 and if the Fed will keep raising 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 interest rate increases, a United Nations agency warned Monday.
In its annual report on the global economic outlook, the United Nations Conference on Trade and Development (UNCTAD) said the interest rate increases and austerity policies in wealthy nations represented an "imprudent gamble" that risked backfiring, particularly on lower-income nations.
"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."
The agency estimated that a percentage point increase in the Fed's benchmark federal funds rate reduces the economic output in other wealthy nations by about 0.5%, and in poor countries by about 0.8% over the next three years. Lower-income nations will already see economic output tumbled by about $360 billion over the next three years as a result of the Fed's rate increases so far this year.
THE FED'S WAR ON INFLATION COULD COST 1M JOBS
Federal Reserve chairman Jerome Powell arrives to speak at a news conference following a Federal Open Market Committee meeting in Washington, D.C., on Sept 21, 2022. (Sarah Silbiger/Bloomberg via Getty Images / Getty Images)
"Excessive monetary tightening could usher in a period of stagnation and economic instability," the UNCTAD said in a statement accompanying the report. "Any belief that they (central banks) will be able to bring down prices by relying on higher interest rates without generating a recession is, the report suggests, an imprudent gamble."
The Federal Reserve has embarked on one of the fastest courses in history to raise borrowing costs and slow the economy.
Officials last week approved a third consecutive 75-basis-point rate hike, lifting the federal funds rate to a range of 3.0% to 3.25% — near restrictive levels — and indicated that more super-sized increases are coming.
There is a growing expectation on Wall Street that the Fed will trigger an economic downturn as it raises interest rates at the fastest pace in three decades to catch up with runaway inflation.
Economic growth already contracted in the first two quarters of the year, with gross domestic product — the broadest measure of goods and services produced in a nation — contracting by 1.6% in the winter and 0.6% in the spring.
The Federal Reserve has embarked on 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 the central bank will tip the economy into a recession with its rapid rate hikes, warning that higher rates will cause economic "pain."
"The chances of a soft landing are likely to diminish to the extent that policy needs to be more restrictive or restrictive for longer," Powell told reporters in Washington in September. "Nonetheless, we’re committed to getting inflation back down to 2%. We think a failure to restore price stability would mean far greater pain."
New government data released last week showed that the Fed's preferred inflation gauge, known as the Personal Consumption Expenditures (PCE) index, accelerated more than expected in August, suggesting that underlying inflationary pressures remain strong.
CLICK HERE TO READ MORE ON FOX BUSINESS
The PCE index showed core prices, excluding food and energy, climbed 0.6% from the previous month and rose 4.9% on an annual basis, according to the Commerce Department.