Inflation Is High. How Will Rate Increases Fix That?
New York TimesSep 21, 2022
The global economy is approaching a recession, according to a Reuters poll that saw economists cut growth forecasts for key economies as central banks keep raising interest rates to bring down high inflation.
Most respondents expect the relatively low unemployment within many of the 47 economies included in the poll to reduce the intensity and length of the recession. However, they also believe it will keep inflation elevated for longer.
Central banks need to raise interest rates to combat inflation by making money more expensive to borrow. By encouraging reduced consumption, rate hikes should result in fewer consumers and companies competing over the currently available supply of goods and services, thereby allowing price increases to moderate. It may be a blunt and even painful tool, but it's a necessary one.
Continued interest rate hikes will only plunge the world into a recession, severely exacerbate life for the world’s poorest, and fail to tackle the true source of the cost-of-living crisis. Rather than aggravating the deteriorating consumer and investor confidence, there needs to be more attention on supply chain shocks and the “undue advantage” taken by large multinational corporations that boost profits on the backs of some of the world’s poorest.