UNCERTAINTY in these troubled times. . .
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Higher-than-expected inflation, especially in the United States and major European economies, is triggering a tightening of global financial conditions. China’s slowdown has been worse than anticipated amid COVID-19 outbreaks and lockdowns, and there have been further negative spillovers from the war in Ukraine. As a result, global output contracted in the second quarter of this year.
Under our baseline forecast, growth slows from last year’s 6.1 percent to 3.2 percent this year and 2.9 percent next year, downgrades of 0.4 and 0.7 percentage points from April. This reflects stalling growth in the world’s three largest economies—the United States, China and the euro area—with important consequences for the global outlook.
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In the United States, reduced household purchasing power and tighter monetary policy will drive growth down to 2.3 percent this year and 1 percent next year. In China, further lockdowns, and the deepening real estate crisis pushed growth down to 3.3 percent this year—the slowest in more than four decades, excluding the pandemic. And in the euro area, growth is revised down to 2.6 percent this year and 1.2 percent in 2023, reflecting spillovers from the war in Ukraine and tighter monetary policy.
✓ There is a chance some economic data could be revised, making it more challenging for officials to set policy.
Fed’s Barkin Says Central Bank ‘Will Do What It Takes’ to Curb Inflation - BNN Bloomberg
(Bloomberg) -- Federal Reserve Bank of Richmond President Thomas Barkin said the central bank was resolved to curb red-hot inflation, even if that meant risking a US economic recession.
“We’re committed to returning inflation to our 2% target and we’ll do what it takes to get there,” Barkin said Friday during an event in Ocean City, Maryland. He said that this could be achieved without a “tremendous decline in activity” but acknowledged that there were risks.
“There’s a path to getting inflation under control but a recession could happen in the process,” he said.
The US central bank hiked interest rates by 75 basis points in July for the second straight month as policy makers tackle inflation that’s running near 40-year highs. Fed officials speaking in recent days have said more rate increases are needed, but they are still deciding how big to move at their next policy meeting.
St. Louis Fed President James Bullard, one of the most hawkish policy makers, on Thursday urged another 75 basis-point move while Kansas City’s Esther George struck a more cautious tone.
“We have a lot of time still before September,” Barkin told reporters after his remarks, noting that there are eight weeks between the July and September meetings. He said his decision on the size of the rate hike needed next month will be based on what economic data shows about the strength of the US economy and whether inflation is starting to fade.
A Labor Department report for July showed that the US economy added 528,000 jobs that month, more than double what forecasters were projecting, and the unemployment rate ticked down to 3.5%, matching the pre-pandemic low.
But a separate report on Aug. 10 showed that consumer prices rose 8.5% in the 12 months through July, down from the 9.1% increase in the year to June that had marked the highest inflation rate since 1981. Officials will be able to review another jobs report and one more reading on consumer inflation before they meet next month. The Fed official said there is a chance some economic data could be revised, making it more challenging for officials to set policy.
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Barkin, who does not have a vote in monetary policy decisions this year, said it is important for the Fed to get rates into “restrictive” territory, where they are putting downward pressure on inflation. The policy maker said he’s “been supportive of front-loading” rate increases, but said there is uncertainty over what level of rates are considered neutral, meaning that they neither slow down nor stimulate the US economy.
“Getting inflation under control is going to be necessary to set up what we have the potential to do in the economy,” he said. “I’ve convinced myself that not getting inflation under control is inconsistent with a thriving economy.”
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