The monetary tightening by major central banks is undermining the world economy, they warn
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The central banks’ aggressive fight with price pressures by raising interest rates could plunge the global economy into recession, Bloomberg reported on Friday, citing economists.
The experts pointed out that after they increased rates by half a percentage point, the heads of the US Federal Reserve, the European Central Bank (ECB) and the Bank of England (BoE) all signaled the need for further increases, even as they acknowledged that their economies were weakening.
The mounting risk is that an even greater tightening of monetary policy on top of the biggest squeeze in four decades, which will undermine demand and hiring so much that it will force the world economy to slump next year, Bloomberg wrote.
“We’re just on the edge of a global recession,” the head of global economics research at Bank of America, Ethan Harris, told the outlet.
The fastest inflation rate in over 40 years has reportedly altered what economists call the “reaction function” of policymakers, including Fed Chair Jerome Powell.
“Normally, they’d be expected to ease credit as economies crumbled to limit damage to households and corporations,” the report notes. Now, while the price growth is well above the central bankers’ 2% targets, they are moving in the opposite direction, even in the face of economic contractions.