US: Nearly four dozen countries have raised interest rates in the last six months, as Central Banks in the United States, England, India and other nations push borrowing costs higher in a bid to contain the most rapid inflation in decades.
The Federal Reserve on Wednesday drove up its benchmark policy rate — its third increase this year and its biggest since 1994. Brazil and Saudi Arabia were among other countries that announced rate policy changes within hours of the Fed’s move.
So far in 2022, 44 countries have lifted rates, data from FactSet shows, with more moves to come.
Higher rates are powerful tools for fighting rising prices: They make borrowing money more expensive, which weighs on consumer demand and business expansions, in turn cooling economic growth and slowing hiring. That can translate into weaker wage growth for households and less pricing power for companies, eventually pulling down inflation.
It is a delicate balancing act, one that puts pressure on policymakers to rein in the economy without sending growth tumbling. Economists and investors see that as an increasingly daunting challenge. As the World Bank and other institutions issue grim forecasts, worries of a looming recession have grown.
“Persistent inflation pressures and deteriorating expectations are forcing central banks to become more aggressive,” economists at Barclays wrote last week. “As financial conditions worsen and sentiment drops, the real economy could follow.” So far, inflation shows little sign of easing. American consumer prices picked up again in a report last week as gas prices surged and a variety of goods and services grew sharply more expensive. The war in Ukraine could continue to push up commodity prices, while efforts to contain the coronavirus in China and worker strikes in South Korea threaten to further disrupt the manufacturing of parts. Demand in America has largely remained robust, though it has shown early signs of easing, and consumers in some other parts of the world are beginning to pull back.
The question now is whether the global economy will be able to withstand a cycle of rate increases unlike any it has recently — and possibly ever — experienced. The outlook is not promising.
“The war in Ukraine, lockdowns in China, supply-chain disruptions and the risk of stagflation are hammering growth,” World Bank President David Malpass said in a report this month. “For many countries, recession will be hard to avoid.”- WORLD NEWSERA
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