As inflation runs wild, the Federal Reserve’s only option seems to be to raise interest rates, which involves a high degree of risk.
According to a recent assessment from a United Nations body, the Federal Reserve should halt its interest rate rises.
The study originates from the United Nations Conference on Trade and Development, which yearly releases its conclusions about the global economic picture. According to the UNCTAD, the pace at which the Federal Reserve is increasing interest rates poses a danger of recession for the global economy, with poorer nations likely to do worst.
Under the leadership of Chairman Jerome Powell, the Federal Reserve has increased interest rates five times this year, with the most recent increase being in September. In that instance, the Federal Reserve increased the federal funds rate by 75 basis points, bringing the benchmark rate to between 3 and 3.25 percent. For context, the federal funds rate began the year at close to 0%.
The Fed’s primary objective behind these rate increases is to control inflation. Last month’s inflation rate of 8.3% frightened investors and consumers; the average cost of food in the United States has grown 13.5% since August 2021, for example.
However, the UN body asserts that the Fed’s efforts may be too drastic and might trigger a worldwide recession. “Any expectation that they (central banks) would be able to reduce prices by relying on higher interest rates without causing a recession is a reckless risk,” the report’s accompanying statement added.
During a news conference in Geneva, UNCTAD Secretary-General Rebeca Grynspan said, “If you want to use just one tool to bring down inflation, the only option is to bring the globe to a slowdown that would lead to a recession.” The present path of action harms vulnerable people worldwide, particularly in developing nations. We need a course correction,” she continued.
However, the Fed has not yet signalled any intention to change direction. The Fed’s major strategy to battle inflation caused by emergency quantitative easing during the COVID-19 epidemic from 2020 to 2021 is rapid rate rises. These efforts, which included billions in cash refunds to taxpayers, emergency small business loans, medical equipment purchases, and vaccine research, caused the Federal Reserve to create an unprecedented amount of fresh money.
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