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| The Federal Reserve has embarked on an aggressive campaign to raise interest rates as it tries to tame the most rapid inflation in decades, an effort the central bank sees as necessary to restore price stability in the United States. |
| But what the Fed does at home reverberates across the globe, and its actions are raising the risks of a global recession while causing economic and financial pain in many developing countries. |
| Other central banks in advanced economies, from Australia to the eurozone, are also lifting rates rapidly to fight their inflation. And as the Fed’s higher interest rates attract money to the United States — pumping up the value of the dollar — emerging-market economies are being forced to raise their own borrowing costs to try to stabilize their currencies to the extent possible. |
| Many economists and several international bodies have warned that there’s a pronounced danger or overdoing it, including a United Nations agency that warned the damage could be particularly acute in poorer nations. Developing economies had already been dealing with a cost-of-living crisis because of soaring food and fuel prices, and now their American imports are growing steadily more expensive as the dollar marches higher. |
| The Fed’s moves have spurred market volatility and worries about financial stability, as higher rates elevate the value of the US dollar, making it harder for emerging-market borrowers to pay back their dollar-denominated debt. |
| It is a recipe for globe-spanning turmoil and even recession. Despite that, the Fed is poised to continue raising interest rates. |
| The World Bank warned last month that simultaneous interest-rate increases around the world could trigger a global recession next year, causing financial crises in developing economies. It urged central banks in advanced economies to be mindful of the cross-border “spillover effects.” |
| “To achieve low inflation rates, currency stability and faster growth, policymakers could shift their focus from reducing consumption to boosting production,” David Malpass, the World Bank president, said. |
| This week, the UN Conference on Trade and Development said the moves by the Fed and other central banks risked causing a global downturn. “Interest rate hikes by advanced economies are hitting the most vulnerable hardest,” the agency’s Trade and Development Report said. |
| So far, major central banks have shown little appetite for stopping their inflation-busting campaigns. The Fed, which has made five rate increases this year, has signaled that it plans to raise borrowing costs even higher. |
| Inflation is high across much of the world: 88 percent of low-income countries, 91 percent of lower-middle-income countries and 93 percent of upper-middle-income countries have seen inflation above 5 percent in recent months, according to the World Bank. Food costs in particular have driven millions further into extreme poverty, exacerbating hunger and malnutrition. As the dollar surge makes a range of imports pricier for emerging markets, that situation could worsen, even as the possibility of financial upheaval increases. |
| “Low-income developing countries in particular face serious risks from food insecurity and debt distress,” Ngozi Okonjo-Iweala, director-general of the World Trade Organization, said during a news conference this week. |
| In Africa, officials have been urging the I.M.F. and Group of 20 nations to provide more emergency assistance and debt relief amid inflation and rising interest rates. |
| To be sure, central bankers in big developed economies like the United States are aware that they are barreling over other economies with their policies. |
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