U.S. economic growth, still racing at a potentially inflationary pace as other key parts of the world slow, could pose global risks if it forces Federal Reserve officials to raise interest rates higher than currently expected. The Fed's aggressive rate increases last year had the potential to stress the global financial system as the U.S. dollar soared, but the impact was muted by largely synchronized central bank rate hikes and other actions taken by monetary authorities to prevent widespread dollar funding problems for companies and offset the impact of weakening currencies. Now Brazil, Chile and China have begun cutting interest rates, with others expected to follow, actions that international officials and central bankers at last week's Jackson Hole conference said are largely tuned to an expectation the Fed won't raise its rate more than an additional quarter percentage point.
FILE PHOTO: Kansas City Federal Reserve Bank's annual Economic Policy Symposium in Jackson HoleJACKSON HOLE, Wyoming - U.S. economic growth, still racing at a potentially inflationary pace as other key parts of the world slow, could pose global risks if it forces Federal Reserve officials to raise interest rates higher than currently expected.
That sort of policy shock, at a moment of U.S. economic divergence with the rest of the world, could have significant ripple effects. Yet Fed officials remain puzzled, and somewhat concerned, over conflicting signals in the incoming data. Quizzed about the divergence after a speech here, European Central Bank President Christine Lagarde noted after the Russian invasion of Ukraine last year, the outlook was for a euro-area recession, and a potentially deep one in parts of it.
China may also play a role, economists say. Its slowdown after a short-lived growth burst earlier this year could pinch Germany's exports and slow Europe's growth, for instance.
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