Amplification of central bank interest rate policy in single image

Amplification of central bank interest rate policy in single image

Monetary policies risk historic global slowdown

With a major debate underway over the number of rate hikes needed to slow inflation, the PIIE says uncoordinated monetary policies risk a historic global slowdown.

Central banks almost everywhere feel accused of being on the back foot. The current danger, however, is not so much that current and planned measures fail to curb inflation. It is that they are collectively going too far and dragging the global economy into an unnecessarily sharp contraction. Just as central banks (especially those in wealthier countries) misread the factors driving inflation as it rose in 2021, they may also be underestimating the speed at which inflation could decline as their economies slow. And, as is often the case, by all moving simultaneously in the same direction, they risk reinforcing each other regardless of this feedback loop. The highly globalized nature of today’s global economy amplifies risk.

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