The United States faces high uncertainty following rapid interest rate hikes, and the Federal Reserve should adjust policy as needed based on global events and the impact of its actions on the domestic economy, the OECD said on Wednesday.
"Risk and uncertainty are greater than usual and tilted to the downside," the Organization for Economic Co-operation and Development said in the world's largest economic survey conducted every two years. OECD predicts U.S. economy will grow 1.5% this year and 0.5% in 2023.
In addition to inflation, "Further disruptions to global markets in response to the war in Ukraine or other factors could also have a significant negative impact on real GDP growth and lead to higher inflation."
On the other hand, there is still a possibility that the recent easing of supply constraints and commodity prices could contribute to a faster-than-expected moderation of inflation, the OECD said.
Central banks around the world are struggling to contain extremely high inflation, which was initially triggered by supply constraints for goods caused by the COVID-19 pandemic and then, further fueled by high fiscal stimulus, the effects of Russia's invasion of Ukraine, the global drought and the periodic shutdown of COVID-19 in China.
The Fed has raised its benchmark policy rate from near zero earlier this year to the current range of 3.00% to 3.25% and has warned of coming pain for the US economy as it tries to bring inflation back down to its goal level.
Fed policymakers expect a possible rate hike to between 4.50% and 4.75% early next year, although Fed Vice Chairman Lael Brainard said on Monday that it was a risk.
There is growing concern among investors that the pace of the Fed's rate hikes is depressing the global economy and outpacing the central bank's ability to monitor the impact it is having.
The IMF yesterday cut its global growth forecast for 2023 and predicted that a third of the world's economy could contract by next year. It saw the growth of the U.S. at 1.6% this year and 1.0% in 2023.
In its report, the OECD noted that inflation poses a "significant challenge" in the United States, as it has widened its scope from goods to services, keeping the Fed on an aggressive tightening path for now.
