Wider Impact – Global Economy
All the talk surrounding rate hikes in the US has been about a recession in the United States, but the problem becomes a lot larger than that. The US economy is interconnected with the global economy, and a downturn domestically often causes economic decline internationally. We saw this with the 2008 global recession, which started with the housing bubble popping in the United States. The constant rate hikes are starting to have a major impact on the global economy, and the UN was quick to point this out.
The United Nations issued a warning to the Federal Reserve, along with other major central banks about raising interest rates rapidly as the economic effects could be devastating. Developing countries are being harmed by rising interest rates in the US, with one example being India, which is facing a third economic decline in the pandemic era. UN studies estimate that for every one percent hike by the Fed, economic output is lowered by 0.8% in developing countries and 0.5% in developed countries over a 3-year period. The UN is suggesting more of a focus on measures like price caps that fight the problem head-on instead of rate hikes, but we don’t know how this will influence the Fed’s decision-making. They have made it clear they are viewing the global economic picture too while making decisions, but they’ve also kept the mentality of increasing it until progress is made. These rate hikes are pushing the globe towards recession, and this could lead to further income inequality and uneven growth throughout the world.
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.