Central banks around the world are trying to control rising inflation by raising interest rates and tightening monetary policy.
On Wednesday, the US Federal Reserve raised its key lending rate by 75 basis points for the third time in a row as it continues to battle higher prices.
The Bank of England followed in the Fed’s footsteps on Thursday, raising interest rates by 50 basis points, and the European Union has indicated it is likely to follow the global wave of aggressive policy action on inflation.
The Fed’s aggressive rate hikes have sparked fears of a recession in the U.S., but Columbia University economics professor and “the Internet’s leading historian of money and disaster” Adam Tooze believes that similar hikes and “simultaneous” central banks around the world could trigger a global crisis. economic recession
There is an “extremely serious” risk of a global recession,” Tooze said the guardian in an interview this Thursday.
The economist made a name for himself during the pandemic through his widely read newsletter, Chartbook, and his data-driven predictions about the future of the global economy, often combined with historical perspective on what might constitute a economic disaster in the future.
In his interview with the guardianTooze warned that the current wave of rate hikes could contribute to that disaster, saying hundreds of millions of lives around the world could be upended by a global recession.
“This will mark the lives of these people for the rest of their lives,” he said.
The failures of technocrats
Despite their best efforts, global economic authorities seem increasingly resigned to the fact that inflation cannot be tamed without triggering a recession.
Last month, Federal Reserve Chairman Jerome Powell warned that the central bank is willing to “bring some pain” to the economy to reduce inflation. And after Wednesday’s rate hike, he admitted that the chances of avoiding a recession are “likely to diminish” and a rise in unemployment is likely on the way.
“We have to put inflation behind us,” he said. “I wish there was a painless way to do it. There isn’t.”
But the tightening of monetary action now taken by Powell and other central bank leaders may not be remembered positively, according to Tooze, who says future economic textbooks will record this era of economic policy as a “classic moment of failed technocracy”. ”
It’s not the first time Tooze has spoken about his concerns about where the global economy is headed. In a July interview, he described the wave of monetary tightening around the world as one component of a coming global “polycrisis,” in which a series of crises are combining to create a single threat and unprecedented for the global economy.
“The whole is even more dangerous than the sum of the parts,” he warned.
Inflation forcing central banks to clamp down on demand is combining with other challenges, including climate change, extreme weather, the economic aftershocks of the pandemic and an increased possibility of wars, to create a bigger crisis and interconnected formed by several people. reinforcement parts, he said.
But given rising interest rates, the risks of a global recession could be the most imminent threat.
Tooze’s dismay at relentless rate hikes from all corners of the globe is shared by investors and bankers alike.
The Fed’s latest rate hike may have been “unnecessary” and a “policy mistake,” said Jay Hatfield, chief executive of investment firm Infrastructure Capital Management. the fortuneWill Daniel this week, adding that the Fed’s stance “significantly increases the risk of a recession.”
Wall Street hasn’t taken the Fed’s policy actions well either, with all three major stock indexes falling after the latest rally.
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