Central Banks Should Stop Hammering the Economy Into Recession
In their zeal to compensate for missed inflation targets, policymakers are risking recession.
Above: Central bankers. Below: The economy.
Photograph: Fox Photos/Hulton Archive via Getty Images
"If your only tool is a hammer, every problem looks like a nail." This old saying still rings true as central banks keep ratcheting up the interest-rate pain. There's been minimal impact on wealthy households but a disproportionate effect on those who can least afford it. Better analysis of the furious pace of raising borrowing costs is needed urgently, along with more flexibility about reaching inflation targets and patience on letting monetary tightening do its job.
A global recession looks unavoidable if interest rates keep being hiked. We've had warnings from the gilt crisis, the collapse of Credit Suisse Group AG and several US bank failures. Plenty of other rate-sensitive sectors are wobbling, including over-leveraged commercial property and utilities. But the real damage is being done in other pockets of the economy such as small- and medium-sized enterprises and home renters.