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UN urges the Federal Reserve and other central banks not to increase interest rates

The UN has urged central banks to refrain from raising interest rates and to veer away from the financial course taken by several western regulators, including the Bank of England.

The United Nations Conference on Trade and Development (UNCTAD) has warned that tightened financial regulations and skyrocketing interest rates might lead to a recession even worse than the one experienced after the global financial crisis.

Concerns that an excessively quick tightening of monetary policy in advanced economies combined with insufficient multilateral support could turn a downturn into a recession are expressed in the UNCTAD’s Trade and Development Report 2022, which was released on Monday.

According to the body, that would trigger vicious economic circles in the developing world with the damage being more severe than after the global financial crisis or Covid shock.

The Federal Reserve, also known as the Fed, is the United States’ central financial institution, and the report specifically mentions how the Fed’s actions have hampered progress: This year’s interest rate hikes in the United States are set to cut an estimated $360 billion of future income for developing countries (excluding China) and signal even more trouble ahead.

Lead author Richard Kozul-Wright told the Wall Street Journal that policymakers should implement price ceilings supported by one-time levies on abnormally large earnings produced by power companies instead of raising interest rates to combat inflation.

Similar to the Bank of England, the Fed indicated late last month that it was committed to lowering inflation to 2% by raising interest rates to 4.4% by the end of 2022 and 4.6% in 2023. Higher interest rates make it more expensive to repay debts like mortgages and credit card balances.

Additionally, the Bank of England increased interest rates in the UK to 2.25%, the highest level since 2008. This fee is expected to raise considerably more than it already has, to 6%.

According to the UNCTAD report, the global economy will expand 2.5% overall this year, which is less than the 3.0% growth predicted in the same estimate for 2021.

According to the report, this situation will only get slightly worse as growth is expected to slow down once more the following year to 2.2%, leaving the real gross domestic product (GDP), which is a gauge of the market value of goods and services produced, below its pre-Covid pattern by the end of 2023.

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