The United Nations Conference on Trade and Development is calling on central banks in major economies to reverse course on raising interest rates, stating that it is leading the world into a global recession and prolonged stagnation.
UNCTAD projects that world economic growth will slow to 2.5% in 2022 and drop to 2.2% in 2023, according to its 2022 global economic outlook report.
The Details: The global slowdown would leave real GDP still below its pre-pandemic trend, costing the world more than $17 trillion, according to UNCTAD — and causing middle and low-income countries and other developing economies to see some of this year's harshest slowdowns.
The most vulnerable are being hardest hit by advanced economies' increases in interest rates. Over one-third of the 90 developing nations that have seen their currencies fall against the dollar this year have dropped more than 10%.
In the wake of the conflict in Ukraine, the cost of basic commodities like food and energy has skyrocketed. Additionally, the problem is made worse by a strong dollar, which drives up the cost of imports in developing nations.
For instance, the U.S. rate increases alone this year could remove $360 billion in future income for poor nations.
In order to reduce the severe price spikes that are impacting consumers in the developing world, UNCTAD said that governments should increase public spending, implement tighter commodity market regulations and deploy strategic price controls to target energy and food prices.
Powell Committed To Raising Rates: The Fed increased its benchmark federal funds rate by 0.75 basis points in September, marking the fifth increase this year. The change increased the rate to a range between 3% and 3.25%.
The Wall Street Journal reported that Fed Chairman Jerome Powell stated that the central bank does take into account the effects its policies have on the rest of the world but would continue to raise interest rates to control inflation.
“We are very aware of what’s going on in other economies around the world, and what that means for us, and vice versa,” Powell said. “The forecast that we put together, that our staff puts together and that we put together on our own, always take all of that — try to take all of that into account.”
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