The Fed has the world in its hands — and its aggressive moves are creating global economic chaos that could come back and hurt the US
And the dollar has been getting a whole lot stronger through the back half of 2022 as the Federal Reserve has enacted historically large interest-rate hikes to fight inflation. The rally has placed central banks around the world in a race to see who can lift interest rates — and, by extension, the value of their money — faster to keep up.
On the other hand, moving forward with aggressive tightening would help curb soaring prices in the States, but it also slams the brakes even harder on economic growth. That would raise the risk of a recession in the US, complete with widespread layoffs, weak wage growth, and plunging investment balances.On September 21, Fed Chair Jerome Powell reiterated that the central bank won't stop raising rates until".
In the UK, the new Conservative government cooked up a tax-cutting plan meant to juice the economy amid fears of an imminent slowdown. But the proposal clashed so violently with the economic consensus thatagainst the dollar and prices on gilts — the UK government's bonds — also nosedived as investors grew increasingly fearful of a ballooning deficit.
As prices soar higher across the UK, the country will creep ever closer to a severe recession. High inflation tends to curb demand as households cut back to preserve their finances. Weaker spending tends to lead to lower revenues, which in turn sparks layoffs and kicks off a vicious cycle of economic decline.
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