A United Nations agency is urging the Federal Reserve to pause interest rate hikes. The news broke on Monday with a warning by the UN saying the Fed and other central banks are currently risking a global recession and a long stagnation period because of its aggressive rate increases. 

The United Nations Conference on Trade and Development’s (UNCTAD) annual report on the global economic scenery stated that the interest rate hikes and strictness policies on wealthier nations is an unwise gamble that could backfire. Especially when it comes to poorer nations. 

Rebeca Grynspan, UNCTAD’s Secretary-General, stated that there’s still time to step back from the edge of recession. Grynspan said the organization has enough tools to cool down inflation and support the most vulnerable groups. However, the current course of action is hurting mostly developing countries. Which in turn, is risking a global recession. 

The UNCTAD’s report estimates that a single percentage point increase in the Federal Reserve’s benchmark decreases the economic output in other wealthy countries by 0.5%. In lower-income nations, that number is about 0.8%, both percentages within the next three years.

These lower-income nations will soon witness the economic output drop by approximately $360 billion within the next three years. That is a direct result of the Federal Reserve’s ongoing rate increases in 2022. 

The UNCTAD statement, which accompanies their annual report, says that these excessive monetary tightenings could bring in a long period of stagnation and instability in the economy. The idea that the central banks could bring down prices by rising interests without tipping a recession is a careless gamble.

Just in 2022, the Federal Reserve has embarked on a fast-track course on rate increases. The idea is to also increase borrowing costs and slow down the economy as a whole. Last week, officials approved yet another rate hike – the third 75-basis point increase in a row. That lifted the federal funds rate to 3.25%, which is near to restrictive levels. 

Wall Street’s expectation is that the Federal Reserve will trigger an economic downturn due to its rate increases. Mostly because it’s doing so at the fastest pace in over three decades in order to catch up with the growing inflation. 

Economic growth in the country already shrank in the first two quarters of 2022. The gross domestic product, which is the broadest measure of goods and services in a country, declined 1.6% during winter and 0.6% during the spring. 

These ongoing rate increases can affect you personally, and more than you know. If you own a credit card and are currently carrying a balance, you’ll end up paying a lot more interest. Follow the link below to learn more about it.