Fed raises rates again: What you need to know about the global economy this week

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This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Joe Myers, Writer, Formative Content


  • This weekly wrapper brings you the latest stories from the world of economics and finance.
  • Top economy stories: US raises interest rates again; IMF cuts global growth forecasts; Australian inflation hits 21-year high.

Economy stories from around the globe

Singapore’s key consumer price measure rose at its fastest pace in more than 13 years in June, according to official data.

Japan has cut its economic growth forecast to 2% for the current fiscal year, which runs from April 2022 to March 2023. Its previous forecast, released in January, expected growth of 3.2%.

South Korea’s consumer sentiment index has suffered its biggest fall since March 2020, when the COVID-19 pandemic hit the country.

Australian inflation hit a 21-year high in the second quarter. The annual rate rose to 6.1% in June, its highest since 2001 and more than double the pace of wage growth.

British industrial output rose at its slowest pace in over a year in the three months to July. However, there are signs that some challenges around inflation and investment are easing, according to a Confederation of British Industry survey.

Consumer prices in Brazil increased slightly less than expected in the month to mid-July.

German business morale fell more than expected in July, according to the Ifo German business sentiment survey. “Recession is knocking on the door. That can no longer be ruled out,” said Ifo Head of Surveys Klaus Wohlrabe.

The National Bank of Hungary raised its base rate by 100 basis points to 10.75% on Tuesday. It takes borrowing costs to double digits for the first time since late 2008.

Spain has raised its inflation forecasts for 2022 and 2023 and lowered its economic growth target for 2023.

A Bloomberg survey of economists finds that they expect Kenya to increase interest rates, with 4 out of 7 expecting a rise of half a percentage point.

IMF cuts global growth forecast

The International Monetary Fund (IMF) has again cut its forecasts for global growth. It warned this week that downside risks from high inflation and the war in Ukraine could push the world economy to the brink of recession if left unchecked.

“The outlook has darkened significantly since April. The world may soon be teetering on the edge of a global recession, only two years after the last one,” IMF Chief Economist Pierre-Olivier Gourinchas said.

Global real GDP growth will slow to 3.2% in 2022 from a forecast of 3.6% issued in April, the IMF said in an update of its World Economic Outlook. It added that world GDP actually contracted in the second quarter due to downturns in China and Russia.

The IMF cut its 2023 growth forecast to 2.9% from the April estimate of 3.6%, citing the impact of tighter monetary policy.

US Federal Reserve raises rates again

The United States Federal Reserve has raised interest rates again. It made a 75-basis-point increase to the benchmark lending rate on 27 July, bringing the rate to 2.25-2.5%.

And Fed Chair Jerome Powell said the central bank could not rule out another steep hike in rates. “While another unusually large increase could be appropriate at our next meeting, that is a decision that will depend on the data we get between now and then,” he said. “We will continue to make our decisions meeting by meeting, and communicate our thinking as clearly as possible.”

He also said he does not believe the United States is in a recession, citing an unemployment rate that is still near a half-century low, along with solid wage growth and job gains. “It doesn’t make sense that the US would be in recession,” Powell said.

Some economics research to read this week

An IMF staff note looks at carbon pricing systems around the world.

The long-term labour market effect of the 1989 Canada-US Free Trade Agreement is explored in new research, outlined in VoxEU.

A new VoxEU column looks at disagreement on future short-term interest rates.

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