Fed will trigger a global recession if rate hikes continue?

The United Nations warned that continued monetary tightening will only hurt developing countries while failing to cool inflation.

The United Nations Conference on Trade and Development (UNCTAD) released a report on Monday warning that central bank monetary and fiscal policy is putting the global economy in danger.

It claimed that U.S. interest rate hikes in particular will cut $360 billion in future income from developing countries.

According to the report, UNCTAD projects a global economic growth slowdown to 2.5% in 2022, and 2.2% in 2023. This will cost the planet $17 trillion – more than 20% of its income. Growth rates for developing economies will descend under 3%, which the organization calls “insufficient for sustainable development.”

It also claims that interest rate hikes are “hitting the poor the hardest,” with 90 developing countries seeing their currencies weaken against the dollar in 2022. Over a third of those countries weakened by more than 10% between January and July, with countries like Argentina and Turkey weakening by 23% and 31% respectively.

The British pound weakened substantially against the dollar last month, falling as low as $1.07 before recovering to $1.13 days later. Despite the crypto bear market, even Bitcoin performed better than most fiat currencies against the dollar over the third quarter. Given the circumstances, UNCTAD warns that a widespread “debt crisis” in developing countries is a “real risk.” Servicing costs on debt across various countries have risen well above 20% of government revenues, with Somalia as high as 96.8%.

As a solution to potential financial crises, UNCTAD recommended that international financial institutions extend more debt and liquidity relief to developing countries. It also called for central banks in developing countries to “reverse course,” and “avoid the temptation” of using even higher interest rates to quell rising prices. Advanced economies, it said, should “avoid austerity measures.”

UNCTAD Director Richard Kozul-Wright also suggested that raising interest rates may not be the actual solution to inflation. Instead, he suggested that policymakers use more “targeted measures,” such as “strategic price controls,” and taxing windfall profits.

In July, the U.S. logged a second consecutive quarter of negative GDP growth, marking a technical recession in the eyes of many.