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Simplifying a Complicated Global Economy

With so many moving pieces, and under such unconventional conditions, navigating today’s global economic landscape would be challenging for anyone. But even if we cannot anticipate every contingency, we can understand quite a lot by assessing the US Federal Reserve’s prospects for engineering a soft economic landing in the near term.

CAMBRIDGE – The global economy this year is full of puzzling surprises. Japan’s GDP growth is currently surpassing that of China, and July retail sales in the United States were double the consensus forecast, despite the US Federal Reserve pursuing one of the most concentrated rate-hiking cycles in decades.

In the United Kingdom, wage growth has risen to an annualized rate of 7.8% and core inflation has remained high, even after 14 consecutive rate hikes by the Bank of England (with more to come). Meanwhile, Brazil and Chile have both cut interest rates, diverging from market expectations that the Fed will keep rates high for a prolonged period.

These oddities are just a few of many, and adding to the complexity are the uncertain implications of significant structural shifts on the horizon. These include the necessary transition to zero-carbon energy, the artificial-intelligence revolution, and various other innovation-driven changes. Add in geopolitical tensions and the retreat from economic and financial globalization, and a wide range of potential scenarios opens up.