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The Growing Specter of a Sharp Global Recession

MIN READOct 4, 2022 | 20:46 GMT

Traders work on the floor of the New York Stock Exchange (NYSE) on Sept. 23, 2022. The Dow Jones Industrial Average dropped more than 400 points that day amid fears of a looming recession.

Traders work on the floor of the New York Stock Exchange (NYSE) on Sept. 23, 2022. The Dow Jones Industrial Average dropped more than 400 points that day amid fears of a looming recession.

(Spencer Platt/Getty Images)

Tightening global financial conditions are sharply increasing the risk of a broad-based global downturn followed by depressed growth and deflation risks. The U.S. Federal Reserve and other central banks around the world are aggressively raising their policy rates in response to rising consumer prices, which have reached multi-decade highs in the United States and virtually every other advanced economy. In addition to rate hikes, many central banks are pursuing a policy of quantitative tightening by selling assets, thus effectively contributing to higher medium- and long-term interest rates. Within this context, a soft landing is becoming increasingly unlikely, and the risk of a sharp recession is increasing as the U.S. Fed and other central banks will need to weaken the labor market substantially in order to get inflation under control. The risk of financial instability is growing as well, because investors are likely to have taken too much risk on the...

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