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A US recession warning has been issued after global stocks plummeted amid widespread anxiety that the American economy is at risk of a financial "collapse".

These concerns have risen after the Federal Reserve's refusal to cut interest rates earlier this week with many analysts wondering if the central bank has left it too late.

Despite inflation easing in the United States, the Fed opted to keep the Federal Funds Rate at its 23-year high of between five to 5.25 per cent.

This is despite the fact other central banks, including the Bank of England, are taking action to reduce their respective base rates.

Traders have now told The Telegraph that they are surprised at the extend of the fall in stocks.

This week, Japan’s Nikkei 225 index closed down 2,216.63 points, representing its second-largest points drop in its history.

The plunge came about after weaker than projected factory data from the US revealed output fell to an eight-month low in July.

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Initial weekly jobless benefit claims made by Americans jumped to the highest level in 12 months over the period.

Furthermore, the pan-European Stoxx 600 index slumped by 1.7 per cent to a three-month low while Germany’s Dax fell to as much as 1.6 per cent.

The Cac 40 in France dropped sharping to one per cent with he FTSE 100 dipping by as much as 0.7 per cent.

With markets plummeting sharply over night and this morning, analysts are sounding the alarm that the Federal Reserve needs to take action as soon as possible.

The Federal Open Market Committee (FOMC) has only three interest rate announcements left to make this year.

Traders are predicting that the committee will need to complete 1.75 percentage points of interest rate cuts this year to prevent a recession taking place.

To compound existing market concerns, Big Tech giants posted poor results this week, including Apple and Amazon.

Despite Federal Reserve chairman Jerome Powell hinting of a future rate cut in September, investors appear to be spooked.

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Kiyoshi Ishigane, chief fund manager at Mitsubishi UFJ Asset Management, explained: "I didn’t expect stocks to fall this much.

“This is probably because there are concerns that the US economy will collapse in a big way, which is the most unpleasant pattern for Japanese stocks.”

José Torres, a senior economist at Interactive Brokers, added: "The short-lived satisfaction of Fed chief Powell communicating decent odds of a September rate cut has turned sour as investors are now panicking that the central bank isn’t trimming soon enough."

The next FOMC meeting is due to take place between September 17 and 18.

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