The Organization for Economic Cooperation and Development (OECD) insisted on the 19th (local time) that central banks in each country should keep interest rates at their current high levels or raise them further to beat inflation.
According to the Financial Times (FT), the OECD recommended that the U.S. Federal Reserve (Fed) keep interest rates in the current range of 5.25% to 5.5% until the second half of 2024, while the European Central Bank (ECB) and the Bank of England recommended raising interest rates further.
The Fed is expected to hold a policy meeting on the 20th and stop raising interest rates. Bank of England is expected to raise interest rates for the 15th consecutive time this week. However, the OECD said it should check whether inflation is continuing to decline before considering easing monetary policy, hinting that the Fed should also be cautious.
Even in the U.S., where evidence of inflation “seems more positive,” it’s still “too early to declare victory” in the fight to ease price pressures and cut interest rates, said Claire Lombardelli, chief economist at the OECD.
He said the central bank should wait until many indicators cool down, including inflation, core inflation, wage pressure and corporate pricing behavior, before stepping away from the economic brake.
It highlighted signs that not all inflationary pressures have eased, with oil prices rising 25% since May, bringing Brent closer to $95 a barrel in international crude markets.
The OECD was also concerned about China’s slowing growth. The OECD predicted that China’s growth rate will be lower in 2024 than the government’s official target of “about 5 percent,” which will slow China’s growth. It also warned that if China’s growth slows further, it will have a serious ripple effect around the world.
The combination of China’s economic shock and widespread financial shock will reduce global growth by more than a third.
A 3% decline in China’s domestic spending will directly affect the Asian economy and raw material exporters through trade, while the U.S. and Europe will be indirectly affected by a significant drop in global stock prices.
Instead, he argued that the most effective step that can be taken to stimulate growth in the short term is to remove some of the trade barriers he has recently established. “Security concerns are right, but there is no need to reduce trade (which enhances economic resilience),” the Lombardelli economist said of the recent rise in protectionism.
