Historically, rising interest rates in the core slow or even reverse capital flows to the periphery, tightening credit conditions there and increasing financial stress on businesses and households. More importantly, rising rates in the advanced economies at the 'core' of the world economy will tend to have an even bigger impact on slowing growth in the developing economies on the 'periphery'. Rising real interest rates in the United States and most of the other advanced economies will tend to slow the pace of demand growth (which is after all the point of raising them). Sustained monetary tightening on this scale, coupled with the intense squeeze on real household incomes from inflation, is likely to result in a slowdown in the rate of economic and oil consumption growth. The inevitable result will be slower growth in oil consumption, possibly starting later in 2022, but almost certainly in 2023, creating conditions for the next cyclical downturn in prices. The Federal Reserve and other central banks cannot close the gap by increasing supply much in the short term, so it must be eliminated by slowing growth in demand to give supply a chance to catch up. consumer and business demand has been rising faster than manufacturers and service providers can increase the supply of goods and services, leading to shortages and upward pressure on prices.īut the problem of excess demand (or deficient supply) is playing out across the other advanced economies and their less-advanced counterparts in the developing world. The Federal Reserve is under increasing pressure to prove it can bring inflation back under control before it becomes entrenched in wage- and price-setting behaviour. interest rate traders are pricing in six quarter-point interest rate increases (or equivalent) before the end of 2022. The consumer price index published by the Bureau of Labor Statistics on Thursday showed every category - including merchandise, services, food and energy - rising much faster than the central bank’s target.Īs a result, U.S. Register now for FREE unlimited access to Register
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