Recession Risks | Weekly Extract September 26th

Recession risks increase as central banks around the world simultaneously raise interest rates in response to inflation, the world could be approaching a global recession in 2023 and a series of financial crises in emerging market and developing economies that would cause lasting damage to them, according to a new comprehensive report from the World Bank.

• Switzerland: Raised its rates by 0.75 points to 0.5%, making it one of the last central banks to move out of negative territory.
• United Kingdom: The Bank of England raised its benchmark rate by 0.5 points to 2.25% and will start selling part of its bond holdings.
• Norway: Raised rates by 0.5 points to 2.25%.
• Indonesia: Raised its benchmark rate by 0.5 percentage points to 4.25%.
• Taiwan: Increased its rate by 0.125 points to 1.625%.
• Philippines: Raised its benchmark overnight lending rate by half a point to 4.25%.
• South Africa: Raised the main repo rate 0.75 points to 6.25%.
• Japan: The Bank of Japan held its benchmark rate at minus 0.1%. Tokyo later intervened to prop up the yen.
• Turkey: Cut its main rate by 1 percentage point to 12%, continuing its contractionary easing campaign.

As mentioned in the previous weekly statementWhile this topic may seem somewhat repetitive, it is in times of uncertainty and economic delicacy such as these that monetary policy really makes a difference.

In this case, while it was not a surprise, neither was it a confirmation of estimates taken positively by the market that on Wednesday the Fed's Federal Open Market Committee announced that it will again raise the federal funds rate by 75 basis points.

Inflation remains elevated, reflecting pandemic-related supply and demand imbalances, rising food and energy prices, and broader price pressures that only help exacerbate recession risks.

The Committee decided to raise the target range for the federal funds rate from 3% to 3.25% percent and anticipates that continued increases in the target range will be appropriate. In addition, the Committee will continue to reduce its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as outlined in the Plans to Reduce the Size of the Federal Reserve's Balance Sheet issued in May.