UN warns Fed against calming rate hikes

UN warns Fed against calming rate hikes

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  • A United Nations agency urged the US Federal Reserve to slow the pace of raising the federal funds rate.
  • The Fed allowed interest rates to rise sharply throughout 2022 in an effort to combat rampant inflation.
  • The UN report argues that poor countries will suffer disproportionately from any imminent recession.

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A United Nations agency is urging the Federal Reserve to slow its increases in the federal funds rate to avoid a recession.

‘We must change course’

The Federal Reserve needs to press higher interest rates, according to a new report from a United Nations agency.

The Report It comes from the United Nations Conference on Trade and Development, which annually publishes the results of its world economic forecasts. According to UNCTAD, the speed with which the Federal Reserve raises interest rates puts the global economy at risk of recession, with poorer countries faring worse than richer ones.

Under President Jerome Powell, the US central bank has raised interest rates five times this year, most recently in September. On that occasion, the Fed raised the federal funds rate by 75 basis points, bringing the benchmark rate to between 3% and 3.25%. For perspective, fed funds rates started the year at close to 0%.

The Fed’s ultimate goal behind these price increases is to tame inflation. Last month at 8.3%, inflation rates in 2022 worried investors and consumers alike — the average cost of food soared, for example. 13.5% In the United States since August 2021.

However, the UN agency claims that the Fed’s actions could be too dramatic and could push the global economy into recession. “Any belief that they (central banks) will be able to lower rates by relying on higher interest rates without causing a recession is, as the report notes, an unwise gamble,” the report stated. statement accompanying the report.

“If you want to use just one tool to bring down inflation…the only possibility is to push the world into a slowdown that will end up in recession,” UNCTAD Secretary-General Rebecca Greenspan said at a press conference in Geneva. The current course of action is detrimental to vulnerable people everywhere, particularly in developing countries. We must change course.”

However, the Fed has not indicated any plans to reverse course yet.

Pain awaits you

Large interest rate increases are the Fed’s primary tactic to combat emergency quantitative easing inflation during the COVID-19 pandemic from 2020 to 2021. These measures, which included billions in cash payments to taxpayers, emergency small business loans, and the purchase of Medical equipment, vaccine research, and dozens of other purposes have prompted the Federal Reserve to effectively issue new currency on an unprecedented scale.

Hastily passed and under the threat of an emergency, however, packages of COVID relief legislation also included significant spending on “pork barrels,” or money contested in a legislative package by senators and members of Congress looking to return the money to their home states and voters. the main ones. by some estimates, up to 35% of the $5.2 trillion that has been spent on COVID relief over the past three years has been pork line items. Compounding the problem is the price tag for President Biden’s $1.9 trillion US bailout plan, and the central bank will pay, at least in part, more credit.

However, it is time to pay for all that printed money. For his part, Powell has been consistent in his message: It was inevitable that price increases would occur this year, and for the most part, Powell kept his word. in Jackson Hole speech In August, he promised a tough road for investors, consumers, labor markets, and nearly all other parts of the economy. “These are the unfortunate costs of lowering inflation, but failure to restore price stability would mean much greater pain,” he said on that occasion.

Disclosure: At the time of writing, the author of this article owns BTC, ETH, and many other cryptocurrencies.

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