UN warns Fed could cause painful global recession

A United Nations agency warned on Monday that the Federal Reserve and other major central banks could cause a painful global recession, followed by a period of stagnation with such aggressive interest rate increases.

In its annual report on the global outlook, the United Nations Conference on Trade and DevelopmentUnited Nations Conference on Trade and Development UNCTAD said that the interest rate increases and austerity policies in wealthy nations were an imprudent gamble that risked slipping, particularly on lower-income nations.

There is still time to step back from the edge of the recession, UNCTAD Secretary-General Rebeca Grynspan said. We have the tools to calm inflation and support all vulnerable groups. The current course of action hurts the most vulnerable, especially in developing countries, and is putting the world into a global recession. The Fed's benchmark federal funds rate reduces the economic output in other wealthy nations by 0.5% and in poor countries by 0.8% over the next three years, according to the agency. The Fed's rate increases this year have resulted in economic output falling by about $360 billion over the next three years, which will cause the lower-income nations to see their output fall by more than $360 billion over the next three years.

The UNCTAD said that excessive monetary tightening could lead to a period of stagnation and economic instability. The report suggests that it is an imprudent gamble to think that central banks will be able to bring down prices by relying on higher interest rates without generating a recession. The Federal ReserveFederal Reserve has been on one of the fastest courses to raise borrowing costs, and officials last week approved a third consecutive 75 basis-point rate hike, lifting the federal funds rate to a range of 3.0% to 3.25% - near restrictive levels, and indicated that more super-sized increases are coming.

There is a growing expectation that the Fed will cause an economic downturn as it raises interest rates at the fastest pace in three decades to catch up with runaway inflation.

Economic growth contracted in the first two quarters of the year, with gross domestic product, the broadest measure of goods and services produced in a nation, contracting by 1.6% in the winter, and the central bank has warned that higher rates will cause economic pain. Powell told reporters in Washington in September that policy needs to be more restrictive or restrictive for longer, as the chances of a soft landing are likely to diminish. We are committed to getting inflation back to 2%. We think a failure to restore price stability would mean far greater pain. The Fed preferred inflation gauge, known as the Personal Consumption Expenditures PCE index, was released last week, showing that the underlying inflation pressures remain strong, according to new government data released last week.

The Commerce Department said that the PCE index showed core prices, excluding food and energy, rose 0.6% from the previous month and rose 4.9% on an annual basis.