The International Monetary Fund on Tuesday downgraded its forecast for the global economy next year and warned inflation will be worse than previously expected due largely to the ongoing disruptions spurred by the war on Ukraine—highlighting the difficulties faced by central banks around the world as they try to cool decades-high price increases without spurring a recession.
Skyrocketing inflation has forced central banks around the world to reverse pandemic-era policy measures meant to bolster markets—but prices haven’t stopped spiking, and more economists are worrying that officials may fuel a recession while trying to cool the economy.
This summer, Bank of America economists warned clients that prolonged inflation and the resulting interest rate hikes have unleashed a “worrying deterioration” in the economy, and particularly in the once-booming housing market. “The Fed has become more committed to using its tools to help restore price stability, with a willingness to accept at least some pain in the process,” they said.
The Fed’s aggressive policy has already tanked the housing and stock markets. New home sales plunged to a six-year low this summer, and the stock market has shed about 25% of its value this year—reversing nearly two years of gains. Analysts warn the fallout will only get worse if the nation plunges into a recession.
This article was first published on forbes.com