HomeFinancial MarketsPersistent U.S. Economic Growth Poses Global Risk

Persistent U.S. Economic Growth Poses Global Risk

Persistent U.S. economic growth, while other parts of the world remain stagnant, is threatening to pose a global risk if it pressures the Federal Reserve to implement further interest rate hikes in an effort to cool inflation. Although U.S. inflation has fallen and policymakers suggest that rate hikes are coming to an end, Fed Chair Jerome Powell acknowledged that the persistently strong U.S. economy could slow inflation decline.

Should the Fed decide to continue hiking rates while central banks across the rest of the world loosen their fiscal policies, U.S. economic divergence could have a ripple effect on global economies. International Monetary Fund chief economist Pierre-Olivier Gourinchas explained that if this indeed transpires, “Then you see a big increase in the risk premia in different asset classes including emerging markets, including the rest of the world. The risk of a financial tightening, a very sharp financial tightening, I think we cannot rule that out.”

Should inflation data and the labor market continue to show signs of easing as expected, the current forecast of another quarter percentage hike by the Federal Reserve may be realized.

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