Sharply higher interest rates, red-hot inflation and a prolonged energy crisis are leading to conviction that the world economy is headed inexorably towards recession.
It's a risk U.S. Treasury Secretary Janet Yellen and European Central Bank chief Christine Lagarde have acknowledged even if neither considers it a baseline scenario. Federal Reserve chief Jerome Powell rejects the notion.Paul O'Connor, head of the multi-asset team at Janus Henderson, notes that since 1955 "the U.S. economy has always experienced a recession within two years from every quarter in which inflation was above 4% and unemployment was below 5%, as they are today.
Central banks are jacking up interest rates. The Fed just delivered a second 75 basis-point increase on Wednesday to tame 9.1% inflation.The IMF says a complete supply cut to Europe by year-end and another 30% drop in Russian oil exports would see European and U.S. growth at virtually zero. For Citi analysts, the July PMIs confirm that Germany is in recession, with the euro area not far behind.
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