We are now entering a state of the economy in which it is best to slow and or reverse the effects of the monetary policy brought on by the COVID-19 pandemic. Currently, the IMF predicts that the global economy will see a growth of 3.2 % between the fourth quarters of 2022 and 2023. This is up from previous years at a rate of 1.9% between the years 2021 and 2022. A large reason for this growth outlook is based on recent news of the reopening of China which saw strict lockdowns during the pandemic. On top of that we are seeing falling energy prices in Europe which may contribute to global growth.
It is known that the main goal of the Federal Reserve is to reach an inflation target of roughly 2% every year. The last recorded inflation rate was roughly 6.5% down from 7.1% in the month prior. This is good news as the U.S. economy has seen the worst of peak inflation, rising to a height of 9.1% in June of 2022. The IMF has predicted that inflation will see another decrease in 2023 and should likely see it drop to 4.3% in 2024.
So this all seems to be good news, so what could be the problem? Well, these economic outlooks present a problem for central banks. Banks all over the U.S. have done their part since the beginning of the pandemic by lowering IR, RR, and offering better loan availability. The question is, when do they stop? Predictions of growth and low inflation are a large step toward a good economy, but can it be better? Does the bank need to continue the monetary policy, or reverse it? Currently, it is the Central Bank's idea to hold off on any decision until they see more change within the economy whether it be good or bad. Then and only then will they have a decision.
https://www.ft.com/content/5f967cde-b409-4bb5-9671-33aadf66f87f
5 comments:
I think that the reopening of China will have a significant impact on the world economy as they play such an important role in various supply chain issues we are currently experiencing. As for our economy, I think it is important for the Fed to continue with their interest rate hikes as a way to counter inflation. It will be interesting to see how aggressive they will be in 2023 and what changes will occur in the economy.
I think the global economy will grow but the 3.2% prediction might be a bit generous because there are many looming issues. European countries recently opted to stop receiving gas from Russia. This could have unforeseen consequences on the economy and shift many dynamics. Also, the United States is looking to lessen its reliance on China in terms of imports received from them. They are actively looking to India to become more of a major contributor to their technology imports in an effort to reduce reliance on China.
Compared to all of the negative news of impending doom from the economy last semester, this seems like an upgrade. There are definitely still worries on how much lower the Fed can reduce the interest rates, but a few months ago economists were predicting another Great Depression. I would rather handle this problem than the one that was previously thought to come.
China opening up again after being shutdown for such a long period of time will shift the supply chain issues that most of the country is experiencing. The US still continues to battle inflation and with no end in sight it can be safe to say that this issue will last for a long time. The US is going to have to make a decision regarding if they want to continue there relationship with China or if we will branch out to different countries, and with that happening how much higher will prices for products go.
To be completely honest, I think all of this behavior is to be expected. At the beginning of the epidemic we already knew that there were going to likely be issues with inflation alongside problems with various supply chains (Although the incident at the Suez canal was unexpected) and that it would take time and effort to recover from it. Now that we're finally at the part where we're trying to recover, I can understand the "wait and see" kind of caution being taken at the moment. The last few years have proven that new economic developments can happen rapidly, and they'd be easier to fix if there isn't a brand new policy that needs to be reversed or altered.
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