The World Bank said in a new report that the global economy could face a recession next year caused by a wave of aggressive tightening policies, but it may still not be enough to curb inflation. Global policy makers are withdrawing monetary and fiscal stimulus at a pace not seen in half a century, according to research released Thursday in Washington. This would have a larger than expected impact in terms of worsening financial conditions and a deepening slowdown in global growth, the bank said. Investors expect central banks to raise global monetary policy rates to nearly 4% next year, or double the 2021 average, in order to keep core inflation at 5%. According to the report’s model, interest rates could go as high as 6 percent if the central bank wants to keep inflation within its target band. The World Bank study estimates that global GDP growth will slow to 0.5% in 2023, with GDP per capita falling by 0.4%. If so, it would meet the technical definition of a global recession.
The Fed’s meeting next week is expected to feature intense debate over whether to raise interest rates by 100 basis points
Fed officials might find a case for a 100 basis point increase next week if they want to show they are sufficiently committed to fighting inflation, though the baseline forecast is still for a 75 basis point increase.
While most economists see a 75 basis point increase as the most likely outcome of the Sept. 20-21 meeting, a 1 percentage point hike is not entirely out of the question after August’s higher-than-expected core inflation. Interest-rate futures are pricing in about a 24% chance of a 100-basis-point increase, while some Fed watchers put the odds higher.
“A 100-basis-point hike is definitely on the table,” said Diane Swonk, chief economist at KPMG. “They may end up with a 75-basis-point hike, but it’s going to be a struggle.”
For some, stubborn inflation and strength in other parts of the economy, including the labor market, support more aggressive rate hikes. Nomura, which forecasts a 100 basis point hike next week, thinks the August inflation report will prompt officials to move faster.
U.S. retail sales pulled back slightly in August after a sharp drop, but demand for goods remained weak
Nationwide, retail sales rose 0.3 percent in August, the Commerce Department said Thursday. Retail sales are a measure of how much consumers spend on a range of everyday goods, including cars, food and gasoline. Economists had expected sales to remain unchanged.
August’s increase does not take into account inflation – which rose 0.1 percent last month – meaning consumers are likely to spend the same amount of money but get fewer goods.
“Consumer spending has been flat in real terms in the face of aggressive Fed inflation and interest rate hikes,” said Ben Ayers, senior economist at Nationwide. “While retail sales edged higher, much of that was due to higher prices pushing up dollar sales. This is another sign that overall economic activity has slowed this year.”
Excluding spending on cars, sales actually fell 0.3% in August. Excluding autos and gasoline, sales rose 0.3 percent. Sales at motor vehicles and parts dealers led all categories, jumping 2.8 percent last month and helping offset a 4.2 percent drop in gasoline sales.
The Bank of France has cut its GDP growth forecast and is committed to bringing inflation down to 2% over the next 2-3 years
The Bank of France said it expects GDP growth of 2.6% in 2022 (compared with a previous forecast of 2.3%) and 0.5% to 0.8% in 2023. Inflation in France is expected to be 5.8% in 2022, 4.2%-6.9% in 2023 and 2.7% in 2024.
Villeroy, governor of the Bank of France, said it was firmly committed to bringing inflation down to 2% in the next 2-3 years. Any recession would be “limited and temporary”, with a sharp rebound in the French economy in 2024.
Poland’s inflation rate hit 16.1% in August
Poland’s inflation rate hit 16.1 percent in August, the highest since March 1997, according to a report released by the Central Statistical Office on September 15. The prices of goods and services rose 17.5% and 11.8%, respectively. Energy prices rose the most in August, up 40.3 per cent from a year earlier, mainly driven by higher heating fuel prices. Moreover, statistics show that rising gas and electricity costs are gradually feeding through into the prices of almost all goods and services.
People familiar with the matter: Argentina’s central bank will raise interest rates by 550 basis points to 75%
Argentina’s central bank has decided to raise interest rates to boost the currency and curb inflation that is heading towards 100 per cent by the end of the year, according to a person with direct knowledge of the matter. Argentina’s central bank has decided to raise its benchmark Leliq interest rate by 550 basis points to 75%. That followed inflation data on Wednesday that showed consumer prices rising nearly 79 per cent from a year earlier, the fastest pace in three decades. The decision is expected to be announced later on Thursday.
Post time: Sep-22-2022