Simultaneous shocks roil world economy Inflation data showcase the need for, as Fed Vice Chair Lael Brainard put it Friday, “avoiding pulling back prematurely” on tightening.

The world economy is showing signs of a rapid downshift as it contends with a series of shocks — some of them self-inflicted by policymakers — increasing the likelihood of another global recession and the danger of major financial disruptions.

“We’re living through a period of elevated risk,” former US Treasury Secretary Lawrence Summers told “Wall Street Week” with David Westin on Bloomberg Television, for whom he is a paid contributor. “In the same way that people became anxious in August of 2007, I think this is a moment when there should be increased anxiety.”

At the heart of the strain: The fallout from the most aggressive hiking of interest rates since the 1980s. 

Having failed to foresee the surge in inflation to multi-decade highs, the Federal Reserve and most peers are now lifting rates at speed in a bid to restore price stability and their own credibility.

Evidence of the impact — and of the blow to consumers’ purchasing power from soaring prices — is mounting quickly. In the past several days, Nike reported a surging stockpile of unsold product, FedEx Corp shocked with a warning on delivery volumes and key chipmaker South Korea saw the first drop in semiconductor output in four years as demand retreated. Apple is backing off plans to boost output of its new iPhones, Bloomberg reported.

The turn is coming even before the full thrust of monetary tightening is felt. The Fed and many counterparts are pledging to keep going with steep rate hikes as they attempt to rebuild credibility. Quantitative tightening programs, where central banks remove liquidity by shrinking bond portfolios, are also just getting going.

Inflation data showcase the need for, as Fed Vice Chair Lael Brainard put it Friday, “avoiding pulling back prematurely” on tightening. She spoke shortly after the Fed’s preferred measure of prices jumped more than forecast. Earlier, data showed euro-zone inflation has punched into double-digits. – Bloomberg

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