- U.S. economic growth is still racing at a potentially inflationary pace, while other key parts of the world slow.
- This could pose global risks if it forces the Federal Reserve to raise interest rates higher than currently expected.
- Policymakers around the world are closely watching the U.S. economy for signs of a slowdown.
U.S. economic growth, still racing at a potentially inflationary pace as other key parts of the world slow, could pose global risks if it forces Federal Reserve officials to raise interest rates higher than currently expected.
The Fed's aggressive rate increases last year had the potential to stress the global financial system as the U.S. dollar soared, but the impact was muted by largely synchronized central bank rate hikes and other actions taken by monetary authorities to prevent widespread dollar funding problems for companies and offset the impact of weakening currencies.
Now Brazil, Chile and China have begun cutting interest rates, with others expected to follow, actions that international officials and central bankers at last week's Jackson Hole conference said are largely tuned to an expectation the Fed won't raise its rate more than an additional quarter percentage point.
While U.S. inflation has fallen and policymakers largely agree they are nearing the end of rate hikes, economic growth has remained unexpectedly strong, something Fed Chair Jerome Powell noted in remarks on Friday could potentially lead progress on inflation to stall and trigger a central bank response.
That sort of policy shock, at a moment of U.S. economic divergence with the rest of the world, could have significant ripple effects.
"If we get to a point where there is a need for ... doing more than what's already priced in, at some point markets might start getting nervous ... Then you see a big increase in the risk premia in different asset classes including emerging markets, including the rest of the world," said International Monetary Fund chief economist Pierre-Olivier Gourinchas. "The risk of a financial tightening, a very sharp financial tightening, I think we cannot rule that out."
Source : [What did Jackson Hole reveal about economic growth prospects?](www.weforum.org/agenda/2023/09/jackson-hole-economic-growth-prospects/) by videos@weforum.org (World Economic Forum) - 100+World Economic Forum by videos@weforum.org (World Economic Forum) / September 06, 2023