Europe, Russia-Ukraine War

Rate hikes, inflation to prompt US, European recessions next year: S&P

Rating agency expects Fed's interest rate to reach 3.7% by year’s end from current target range of 1.5% - 1.75%

Övünç Kutlu   | 30.06.2022
Rate hikes, inflation to prompt US, European recessions next year: S&P


Central banks' sharp interest rate hikes and persistently high inflation are expected to push the US and Europe into recessions next year, S&P Global Ratings said Thursday. 

"As economic growth slows and financing conditions become tighter, we see a risk that sharply higher interest rates, persistent inflation, and renewed consumer caution will push the US, and potentially Europe, into a recession, most likely in 2023," the rating agency said in a statement.

S&P said central banks' monetary tightening around the world to lower inflation will put a brake on global economic growth.

Although central banks had a relaxed monetary policy stance during the coronavirus pandemic in response to pressures in global supply chains, they are now reversing their stances due to Russia's war on Ukraine and rising prices for energy, food and other key commodities, it said.

The agency stressed that record inflation, energy security, and geopolitical uncertainty are major risks to the global economy. It warned that falling income and a higher cost of living could also dampen consumer demand.

"Persistent supply-side price pressures in the food and energy markets may fuel broad-based inflation, and the evolving repercussions of the Russia-Ukraine conflict could undermine global trade and economic growth," it said.

The agency said it expects the US Federal Reserve's benchmark interest rate to reach as high as 3.7% by the end of the year, which currently stands at the 1.5% - 1.75% target range.

"By mid-year 2023 as recession looms, and with unemployment rising and inflation easing, pressure comes off the Fed, and short-term rates start to reverse through the second half of 2023," it said.

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