A Rising Dollar Is Hurting Other Currencies. Central Banks Are Stepping In.

Oct 27, 2022 · 117 comments
Amorak (Canada)
Before I read this article I searched for references to Canada and Mexico, the US's 2nd and 3rd largest trading partners, and, together, are far larger than trade with China. They were not mentioned. Why would such an article not reference these two countries and their currencies, given that the massive trade between the three countries is so impacted by changing currency valuations? Even before China edged Canada out as the US's top trading partner, these types of articles seldom referenced Canada. Has Canada no place in US currency and trade discussions by analysts and the news media?
Robert Howell (Saskatoon)
@Mikey Yes, we try to maintain a stable global economy by cooperation in trade but when things go wonky self-interest always wins out. Naturally, anytime there’s a glitch to the system the leading economy will abdicate its leadership role to take care of domestic concerns. I’m fairly sure if Canada’s economy was as big as its land mass we’d do the same.
Angus,Brother of Fegus (Salish Sea, British Columbia, Canada)
@Mikey Actually Canada is a first world country as we offer all of our citizens single payer universal health coverage. America is the only country in the G-7 that does not. Ergo, you live in a second world country. Full stop.
Mikey (NY)
@Amorak From a pragmatic perspective, Canada isn't really a separate country, it's more like our 51st state. Or maybe more of a territory, like larger, colder, more polite Puerto Rico.
KxS (Ottawa)
All central bankers were asleep at the switch to inflation, and now they woke up and… you guessed it, are overdoing it because they aren’t good at their jobs. Larry Summers was shouting from the rooftops, and not a one paid attention. Anyone who thinks that Jerome Powell will stop before he’s ruined the global economy, is unaware of the scope of this Trump appointee’s incompetence. But take heart America, at least you don’t have Canada’s Tiff Macklem, who sat on his hands while Trudeau was emptying the treasury, and is now working overtime to make Canadians homeless. To put this into perspective, if rates stay this high, I can look forward to a retirement of homelessness and poverty.
S. A. Samad (USA)
"Federal Reserve's rapid interest rate increases" seemed to have been attributed by the authors as the trigger to weaken and upset the global economy! As a major in economics of the class 1962 I would like to disagree very humbly with the opinion, non-the-less the answer is already given by the authors! "But there is another issue troubling investors and policymakers. Global markets are connected, with prices for assets around the world linked to one another. And so rising U.S. interest rates have prompted sharp shifts in global currencies, bonds and equities, causing markets to react suddenly and simultaneously." I reiterate the reasons, division, disfunction and dis-connection among the world-economies. Historically though the US economy is otherwise multifaceted, versatile, potential and resilient, but not the panacea for myriad of uncanny natural and man-made events! Off the point fiscal policy of the political leaders at the helm, the corona pandemic, nemesis of Russia-Ukraine war and deflowering the cool of the climate for example! Seeing things in the right perspective I believe the woeful status of the present global economy solely precipitated by a few of the power hungry politicians, and of course not merely raising routinely the lending rate by the Fed-chair only in order to wrest away the rage of inflation! I sincerely think under the on-going geo-political environment the Fed Chair is left with no other than this monetary policy option to try for.
Kirk C (Delmar, NY)
We are the best (and) biggest house on a bad block of money printers that has operated with disregard for anything but the short term since 2008-9. Normalization and something besides interest rate changes as “fixes” will be painful worldwide, but playing the current game is unsustainable.
Clive (Mexico)
I find it quite incredible that very often - and notably in this article - NO mention is made of the Mexican peso, which has stayed stable against the US dollar. No, apparently these columnists prefer to worry about (EG) India or the UK, and have conveniently forgotten that Mexico is the No.1 USA trade partner.
Angus,Brother of Fegus (Salish Sea, British Columbia, Canada)
@Clive Here in Canada, many of us can appreciate your frustration. In terms of NAFTA, Mexico is the Rodney Dangerfield of the three country pact. You are included and abused for your access to cheap labour. Trust me, here in Canada we do not receive a lot of respect from the Americans either. Ask any Canadian working in the soft wood lumber industry. On the bright side, both our country's offer single payer universal health care coverage to all of our citizens. Mexico under IMSS. America, on the other hand, has a pay-for-play system. As such, America is the ONLY country in the G-7 that does not offer its citizens single payer universal health care coverage. That makes them a second world country at best. For what it is worth, I believe many/most average Canadians respect Mexico and it peoples.
thyssenbot (India)
Everyone is talking about oil companies profiteering. They tend to forget that between 2019 and 2021 the oil companies were facing record losses. Not to mention that Shell and BP had to write off $25 billion worth of stake in Russia's Gazprom due to sanctions. Poor governance is the root cause of the issue - First, Democrats paid in billions to prolong the lockdowns they so loved. But why blame Xi for the extended lockdowns in China? Isn't it hypocrisy? Second, they were caught napping - since billions in doll outs, coupled with supply shortages, were already causing inflation. But they were too afraid to admit their policies had caused inflation. Third, they got into staring contest with Putin. After disastrous Afghan exit and accusing Trump of being a Russian agent, they could not afford to look easy on Putin. They thought freezing his assets and putting sanctions would immediately bring him to knees. Little did they understand that the world was not interested in another white man's war. If this is not poor governance, I don't know what is.
Foundthecat! (Indiana)
@thyssenbot How many Ukranian lives are OK to sacrifice so we can be comfortable ignoring it? Second, why are Democrats responsible for China's CV policies? Third, there was a 1.5 trillion dollar dole out to US corporations and the wealthy in 2018 coupled with increased taxing tariffs Americans pay on over 600 billion dollars in foreign goods. The global infatuation with Just-In-Time supply chains showed its weakness when the pandemic started, as did the various tariffs that choked off US ability to acquire medical products, esp masks. Last, OPEC+ was losing money hand over fist pretty much since 2014/15 and US frackers who invested billions in US wells were losing money while we paid $2 at the pump. Oil prices are high but that's how the global oil market works with commodity pricing, true supply/demand economics.
Bernie (Fort Collins)
Monopolies, we need anti trust enforcement
Baron95 (Westport, CT)
The first Krugmanism - that money printing would not lead to inflation - has crashed and burned. The second one - that countries like Japan can run massive government debts with impunity - is about to crash. Run-away money printing and government debts only worked temporarily in an age of greatly expanding supply (think US oil fracking and Chinese factory building over the last 2 decades). As things normalize, faulty fundamentals will lead to the inevitable high inflation, high interest rates, and ultimately inability of these countries to service their debt. It may take a year, 5 years or a decade. But it's unavoidable. You can only keep a pyramid scheme going for so long. Madoff managed to keep his going for 2 decades. The US and Japanese government can probably manage 3 or 4. But the end will be the same.
Foundthecat! (Indiana)
@Baron95 Artificially low interest rates had nothing to do with inflation?
East Coast (USA)
The Fed raising interest rates amid the global supply strains and high energy prices only exacerbates inflation. The impacts on the everyday life of people around the world are real and worsening everyday. The Fed needs to signal that it will stop before severe hiccups in the global financial system occur.
Marion Francoz (San Francisco)
There can be too much of the good thing. The Federal reserve needs to know when to modify its slash and burn approach. to inflation.
Anitakey (CA)
It made no sense to keep raising interest rates without impacts to the rest of the world. A fine line for the Fed
Mike L (South Carolina)
Much of the current inflation is being caused by corporate greed. Period. Companies see a chance to raise prices and are doing so. As proof I present the record profits of Exxon/Mobil & other oil companies. This is what happens when you have so few companies in so many key industries.
mike (San Francisco)
People seem to forget that we are coming out of a huge global pandemic. Anyone who expected the world to simply pick up where it had left off 3 years ago.. was dreaming. Add in Russia's invasion of Ukraine that has upended the global energy balance, created food shortages, and increased geopolitical friction.... and economic stress is unavoidable. -- 8+% inflation will continue to create pain and so must be decreased.. and at some point the Russians will stop their destructive war (we hope)... -- It may take a year of more, but things will improve..
James Ribe (Los Angeles)
My guess is that the Fed is going to pivot soon. The reasons center around what is in this news story. This is not 1979. The Fed's freedom of action is much more constrained this time. I understand the implications of what I just said. We are into a different world.
SridharC (New York)
I am a lay person and I do not understand economics. All I know now is that in the United States, the richest country in the world, you must work until you die.
bubba (TN)
@SridharC - specially this current wave of inflation has effectively wiped out ~40% value of our 401k savings.
Angus,Brother of Fegus (Salish Sea, British Columbia, Canada)
@SridharC And with pay-for-play health care!
Devin (Philly)
@SridharC We aren't the richest company in the world, that's a myth perpeutated by the rich owned media. We have the most rich p ricks in the world, big distinction.
haniblecter (the mitten)
Cocacola has raised prices on their core products for months now with no change in consumer trends. Why should they stop? Why should any consumer brands stop the march up if there's no penalty visavis consumers buying less. Antitrust is the real solution...only 6 makers of food responsible for 75% of the products we see in teh supermarket. What's the concentration in supermarkets? Appliances? Farming? Other commodities?
Bernie (Fort Collins)
Right On Target
Shonuff (New York)
@haniblecter Soda is another thing people can live without. If it's too expensive don't buy it!
Gunnar Mykland (Guatemala)
Here in Guatemala, the US dollar was rising and rising fast. So the central bank changed its director. His politics are to weigh down the US dollar, and now the dollar is descending. From 7.90 to 7.83.
TB (New York)
The global economic and financial systems that were created over the past thirty years were always inherently unstable, but low inflation, mostly debt-driven and artificial economic growth, and a relatively benign geopolitical environment made them seem to be in fairly stable states of equilibrium. That's all over, now. The entire global economic landscape has changed in fundamental ways. As a result, the foundations of the global economic and financial systems are crumbling before our very eyes. This like watching happen, in slow motion, one of those massive winter highway accidents that you see the aftermath of in the news, with the wreckage of cars, trucks, and jack-knifed tractor-trailers crashed into each other for as far as the eye can see.
Jorge (USA)
Dear NYT: Thanks to the NYT for paying attention to this problem, and the economic pain we are inflicting on the world with our strong dollar and anti-inflationary policies which, paradoxically, export US inflation effects abroad. We keep hearing the mantra from Democrat economists that "inflation is global," and even worse in Europe, so nothing the US is doing could be the cause of global inflation, or could make it worse. Not so. Once again, the USA is exporting its financial pain if little else overseas. The Fed forced our allies to adopt the same "hot money" policies to stimulate economic growth following covid -- zero interest rates and QE -- which caused infaltion to roar overseas too, though it lagged here. And now in its zeal to combat domestic inflation, the US is inflicting damage to other currencies, mainly our allies whose economies are most closely interlinked. When the euro or pound loses value against the "strong dollar," their buying power decreases. This is functionally equivalent to inflation.
Mkm (Nyc)
@Jorge - Nonsense, The Rising value of dollar increases the value of Dollar investment own by foreigners. Countries that sell goods to the US get paid in Dollars so they are earning more on products sold to the US. Sellers of goods to the US can lower their price in dollars and sell more to the US profitably. The biggest losers are US companies selling into other markets, the increased cost of a dollar makes American goods more expensive. The US is the second largest export nation in the world, $2.12 trillion worth this year.
Jorge (USA)
@Mkm I agree with many of your points, but these are all second order effects. You have not addressed my most basic point: As the NYT article points out, the Fed's strong dollar policy drives down the value of foreign currencies vs the SD, which reduces their buying power. Capiche?
James Cornelio (Ct)
What a mess. Maybe we should go back to the gold standard and get these eggheads with their bespoke suits and fancy degrees out of the business of setting the value on our most precious of commodities -- money. Remember, it's only as good as our trust in it and, right now, trust in everything is at a very low ebb. But if we lose trust in the international monetary system, the consequences will be as bad, if not worse, than loss of trust in the political system. In fact, it would undoubtedly trigger a political upheaval.
northlander (Michigan)
Should make our primarily imported goods much cheaper, why not?
Angus,Brother of Fegus (Salish Sea, British Columbia, Canada)
Here in Canada the loonie is only worth 74 cents to the American dollar. That explains, in part, why fewer Canadians seem to be crossing the border to shop. Our family has not been Stateside for donkey's years. Not sure we could afford to go now even if we wanted. It's all good. We have already been to the States in past years. We will continue to shop local here, especially at the farmer's markets on Salt Spring Island where our CDN dollar is still worth a dollar.
Mikey (NY)
@Angus,Brother of Fegus Yes, but it made my $80 bar tab last weekend in Montreal a lot nicer.
Angus,Brother of Fegus (Salish Sea, British Columbia, Canada)
@Mikey Lucky Yank, you! And the poutine there is the real deal, along with their maple cake and cinnamon ice cream.
Merriman (NYC)
What I am not understanding is how the rising dollar is not countering inflation. If the $ is buying much more in Yen, Euros, GBP etc, then someone is paying less for imported goods, and keeping the difference, rather than cutting prices. NYT - you need to investigate who is having a windfall here! Yes, a lot of contract prices (Oil etc) are in US$, but after years of a high $ imports general goods should be moving down in price, but they aren't - the companies/ importers are pocketing a windfall from the dollar's strength. In my field, I noticed that Japanese camera companies - Nikon, Canon, Sony etc, are increasing their local (Yen) prices to prevent buyers from purchasing cheaper in Japan, taking advantage of the huge price difference. Their local costs - offices, staff wages, etc, are all in Yen, unchanged, so its really just profiteering to hold onto the ~30+% extra they are suddenly making from US sales.
Ugly And Fat Git (Boulder, CO)
The dumbest thing Biden did is to put sanctions on Russia and now average person in hurting. I am sure other countries are now thinking about how to get rid off Dollar as a reserve currency.
Woof (NY)
Re: A Rising Dollar Is Hurting Other Currencies. Not the Ruble . The Russian currency is up - not down - against the dollar By 14.3%. Re one year ago Data The Economist, Oct 22, 2022
bubba (TN)
@Woof - for Americans, the only meaningful measure of US dollar strength is the costs of living here in US.
Blanche White (South Carolina)
@Woof All definitely artificial, don't you think? There economy is crashing with all the foreign businesses that have pulled out.... over a thousand last I heard. They can't get appliances, cars, etc.... Siemans, Renault and many other large companies have taken significant losses to get out of Dodge ....the ruble is really rubble just like the buildings of Ukraine. So, if you're a reader of The Economist, I suspect you know this. Therefore, have a care, and don't make light of the tragedy of the Ukrainians ....and the world really.
cdisf (SF)
For those blaming US economic woes solely on greedy corporations, look at who has allowed interest rates to stay near zero since 2008 so that corporations could borrow at artificially low rates? Obama 8 years, Trump 4 years, Biden 2 years. Everyone who works for a corporation while bashing it, including employees of the corporate NYT, should take a voluntary pay cut. Humans look after their own best interest. No one works for free. Corporations also exist to make money.
Nicole (LA)
Yes, but record profits aren’t going to workers of those corporations they are going to stock buy back and CEO salaries - the gap of which continues to widen against the average employee salary.
Blanche White (South Carolina)
@cdisf Yes, low interest rates have allowed for incredible distortions to arise. But, I would like to point out that when Powell was poised to raise rates and the markets got a tummy ache, Trump started chewing on Powell and the possibility of replacing him and soon, that next hike took a hike. And, for all those who say it was the "fundamentals" that dictated that, I say bah humbug. .. and so, here we are ? Trump squelched those moves ... Obama had a country to save and perhaps overcorrected. Trump was trying to save himself while the Fed took cover.
Stephen (Albuquerque)
@CDISF I agree with what you are saying, but US President’s have little direct influence on interest rates. Bernake, Yellen and Powell are the names for your lists. When Trump criticized Powell, his own appointment to the chair position, the media, economists, bankers and politicians all complained. The history of the Fed being independent of the politicians was in jeopardy. When Yellen tried to tighten monetary policy on 2017-2018, it probably should have gone forward. But that will be for history to judge.
Frans Verhagen (Chapel Hill, NC)
Image an UN Peoples' Bank with representatives of central banks who issue the new digital currency of the Tierra and steer its circulation to democratically determined regions of need. Given that its sovereign money is only limited by the quality of its discipline imagination in order to avoid inflation, money would be abundant in its decarbonization-based international monetary system with its associated subsystems of a money-based financial system, an inequality-reducing fiscal system, and UN supervised global trading system that would simultaneously keep accounts of both financial and climate debts and credits. Such system is being proposed in a monetary sustainability framework called TTRIMS which stands for Tierra TRansformed International Monetary System (TTRIMS) sustainability framework of international development. It is developed by the International Institute for Monetary Transformation and presented in https://transformmoney.org/. Given important monetary and financial developments since the 1930s the UN Assembly is to convene a Bretton Woods 3.0 by pushing for a 2023 UN Commission of Monetary Reform and Transformation and its associated 2024 UN Foundational Convention.
Colin Ferris (London UK)
Putin on the one side, the US on the other - both causing mayhem.
Woof (NY)
Given the War in the Ukraine, in many way the most important currency relationship is dollar vs ruble . Yet it is omitted As of Oct 12 , percent change re 1 yr ago , the Ruble is up 14.3% That is, the dollar has fallen against the Ruble Indicating that US economic sanctions failed Data: The Economist Oct 22 Edition https://www.economist.com/economic-and-financial-indicators/2022/10/20/economic-data-commodities-and-markets Re inflation , in many ways the most important number is how the US does relative to China . Consumer Prices , China , latest Sept 2022 + 2.8% Year to Year * 2022 : 2.1 *The Economist Intelligence Estimate/Forecast Data https://www.economist.com/economic-and-financial-indicators/2022/10/20/economic-data-commodities-and-markets
Keith Alt (California)
@Woof Russia used capital controls to prop up the Ruble, and has benefited from high energy prices. Its GDP is still negative and will probably continue to decline.
Bob McDonald (Calgary)
Since 1973 the USD has been backed by OPEC and oil. If the Saudis start selling oil in Yuan or some basket of currencies instead of USD it will be a game changer. Powell sees the writing on the wall. That's why he wants to shelve quantitative easing as an operational tool of monetary policy. The days of exporting US inflation around the globe could be over.
Woof (NY)
Re: Central Banks Are Stepping In. The Telegraph, UK, today "Euro falls sharply as ECB vows to keep printing money until 2024“  The euro has slumped against the dollar after the ECB vowed to keep printing money until 2024. The central bank said it will continue its programme of quantitative easing “for an extended period time It also said its pandemic-era bond-buying programme will continue until at least the end of 2024. The Telegraph UK , today
Harry (Oslo)
The US can kiss goodbye a huge percentage of its export market if this craziness continues.
Glenn (Croton-on-Hudson, NY)
In times like these, it never ceases to amaze me how nations, banks, hedge funds etc., spend so much time and effort trying to make more money out of less, with no overall benefit to humanity. And when markets inevitably fall or crash, misery ensues. Money IS the root of all evil.
AHull Truth (CA)
the love of money is the root ...not the money itself
bubba (TN)
Whenever the subject of inflation in US is discussed, the Washington spin doctors would jump out to tell us to turn our heads around, to look at other currencies. Well, we live here in US, and money we earn and use to buy things is USD. Therefore, the prices here in USD are the only thing we care about. We don't care about Japanese Yen doing this or British Pound doing that. Last time I check, the average price of the heating oil in the east coast region was $351/gal 12 months ago, now it is $5.2/gal. That is ia 48% inflation ! Can you still honestly say the value of USD is "through the roof" and it is getting too "strong" ?
B D Duncan (Boston)
International trade is a huge driver of commerce in this country. While you might not personally care, millions of Americans get paychecks from companies that sell goods and services to other countries in other currencies. Their inability to afford the things we’re selling is actually something that’s of concern.
bubba (TN)
@B D Duncan - the costs of living in Dollar for the people here in US is the only kind of dollar strength we need to care about, nothing else helps.
@bubba, narrow minded thinking. Narrow mindedness doesn't realize that the global players contributing to energy inflation are hoping to get a more-friendly-to-oligarchs government elected here with it's attendant anti-labor, regulatory capture, and lower taxes for the wealthy. Make America like Russia.
Uzi (SC)
NYT:10/27/22. A Rising Dollar Is Hurting Other Currencies. Central Banks Are Stepping In. The fast-rising interest rates in the US will impact developing economies in a deja vu manner of previous crises. That is, payment of dollar-denominated debt stops. The question is whether China will take advantage and replaces the IMF. The Washington-based multilateral institution is the lender of last resort for sudden financial crises in the balance of payments. This time, it creates a unique business opportunity for China. To provide loans on a quid pro quo basis of trade and economic concessions. The attraction is that governments avoid painful economic reforms demanded by the IMF.
dgaz (phoenix)
Inflation occurred around the world as a result of corporate greed. Corporations saw an opportunity to cash in with decreased supply and raised prices...for fuel, products, materials etc. as illustrated by record profits in some companies. The war in Ukraine and covid restriction in China added fuel to the fire as well. Stop buying anything an watch how fast those priced will drop.
Colin Ferris (London UK)
@dgaz Prices rise or fall in rsponse to demand and availability. Call it greed if you like but a rising price is just a measure of how much you want something scarce.
Mr. man (NY)
@dgaz Stop buying anything an watch how fast those priced will drop. Good point. However, in this era of consumerism this will be a tough ask. It is absolutely the right of individuals to buy what they want, but buying also fuels corporate profits and in turn greed (eg: amazon which probably made a killing from people ordering random stuff online during the pandemic). However, something that is not talked about is also individual investors. A lot of us have money in 401K's and other forms of investment and naturally, expect a sufficient return on investments. In summary, yes corporate greed is a major problem but it's not as simple as that either, since we're all tied into each others' needs (and perhaps greed?)
Frank Walker (Hudson)
The false scarcity of meat products during covid and rigged oil prices would prove your point wrong.
David Esrati (Dayton Ohio)
Apparently the geniuses running the Fed have never played Monopoly. When the wealth of a nation is hyper concentrated in the hands of a few, it’s the same as one person owning all the property and having all the money- the game ends. The game ended in America a few decades ago, when we stopped enforcing antitrust laws, allowed banks to get “too big to fail” and let the rich buy our politicians. Interest rate hikes are making the rich richer, the poor poorer, and helping the republicans win an election so they can continue their disastrous policies of trickle down stupidity. Most politicians are too stupid to understand that the rate hikes MUST stop immediately, and some form of income redistribution has to happen- all the American Recovery Act dollars have now been gobbled up by our counties 619 billionaires (up from 300 20 years ago) and they love these interest rate hikes… up until the revolution starts (as students of history know always happens when the wealth gap becomes too vast). As the largest buyer of goods and services in this country, a simple change to purchasing regulations, specifying that the US Government will not purchase any goods or services from companies that pay their executives more than 20x their employees average pay would be a game changer. As to the concentrated wealth, no one should be able to make billions, that money needs to be returned to shareholders or employees. Our system has been manipulated by the rich, intentionally and totally.
edwardc (San Francisco Bay Area)
@David Esrati I'm going to take exception to your claim about politicians being too stupid to understand the effects. As Upton Sinclair put it, for most, their salaries depend on failing to.
Northwoods Cynic (Wisconsin)
@David Esrati But … but … but that’s socialism (say our billionaires).
Meighan Corbett (Westchester County NY)
The Japanese have been unable to stoke inflation in nearly 30 years. It seems ludicrous to think they will be able to do so next year or even in the next 5 years. With an aging population that prohibits immigration, growth will be hard to come by.
Northwoods Cynic (Wisconsin)
@Meighan Corbett Is “growth” necessarily wonderful?
A Patriotic American (USA)
If other Central Banks had been paying attention, the moves by the FED would not have come as a surprise. Yes, we all overspent during the pandemic. As a result of overspending, the idiotic war in Ukraine and the China "covid zero" nonsense, inflation took off. Anyone who passed Econ 101 knows you have to cool the economy by raising rates (and reigning in fiscal spending) to bring down inflation. The fact is, many (including the FED) were slow to realize the pace of Inflation. Our attempts to bring it down are rational, reasonable, and consistent with established economic theory. If other central banks deluded themselves by thinking the US wouldn't protect itself, they are finding out the hard way that they are dead wrong.
cdisf (SF)
@A Patriotic American Inflation took off in first quarter 2021, more than a year before the Ukraine war. By December 2021, it was at 6%. Even at that point, Biden, Yellen and Powell told us to believe what they said, and not what we saw. All of this could have been avoided if federal spending had been moderated in 2021 and the Fed has slowly steed raising rates. Yellen and Powell must go. Voters will take care of Biden on their own.
A Patriotic American (USA)
@cdisf Yes, that's true. But...you don't seem to account for the Supply Chain issues caused by China's continued lockdown of its economy. That is what snarled the supply chains. Couple that with the over purchasing of items that are a result of families in this country who were dealing with modified work, Covid-19 restrictions, and related factors was a major driver of inflation. It's too easy and pat to just "blame the Fed" or "blame Yellen". It does not, in any way, address the actual underlying factors that boosted inflation, not only here in the US, but around the world. Too many people chasing too few goods = inflation. That is the legacy of Covid-19.
Chip (Wheelwell, Indiana)
@A Patriotic American Wrong. Many of us spent less during the pandemic. Many of us stopped commuting, dressy appearance, eating out, travel, entertainment. Boring but money saving.
phacops1 (superal)
Too bad, maybe they should not have followed the Feds Pied Piper in 2008 with negative rates, QE and ZIRP. What a financial farce.
Me (Miami)
Really not concerned about other counties economies……..figure it out.
@Me, at some point if the USD is replaced as a preferred reserve/petro currency, you will be concerned then.
TexMex (On The Border)
Half a story told. On the other hand, as the dollar spikes versus other nations’ currencies those overseas manufacturers and exporters have a widening cost advantage over U.S. producers. Countries dependent on tourism get a fillip too.
Victor Huff (Utah)
Normally the econ wizards lament about a weak dollar, now they are crying about a strong one. Normally they whine about a high unemployment rate, now they are crying about a low one and want to have more people out of work. The Fed is screwing the American middle class who are sitting around watching their retirement accounts dwindle in front of their eyes. Powell needs to give it a rest, his increases are now trickling up to the big corporations.
Colin Ferris (London UK)
@Victor Huff One aim of higher interest rates is to create unemployment - This is what cooling the economy means
Chip (Wheelwell, Indiana)
This is the stupidest Fed I’ve seen in my 60 years. There is no inflation to crush. There is only windfall profits, which should be heavily taxed. Ruining the entire world’s economy because they have only one trick. Bad pony.
Mkm (Nyc)
@Chip - You mean Biden lied when he said Putin caused inflation, which you say doesn't exist.
John (Hartford)
Most foreign reserves are held in dollars. It's 60% plus of the total so all these countries will have seen an overall strengthening of their reserves. The extent of any selling to prop up domestic currencies is murky. Is there a lot of evidence for this? And if anything the dollar's rise has slowed recently. There was that bit of volatility with Sterling but that's reversed itself.
Chip (Wheelwell, Indiana)
With a minuscule exception for a million Covid deaths (most of those past working age), there will never be wage pressure based inflation again. There are too many humans, and more automation coming relentlessly on line. There is no inflation. There is only gouging.
Steelcity (Pennsyltucky)
@Chip All I see is record profits from Big Gas and Oil. I think it's insane we subsidize energy so much and they still take with both fists. Diesel is still really expensive and when big rigs, trains, and ships run on diesel everything gets more expensive. I also think there is a problem with the idea that there will be constant growth quarter after quarter. It's a rollercoaster, so the higher we go up the more we will fall. I hear a lot of people blame inflation on Biden, but I got my first pandemic check from Trump.
Michael (Castrp Valley)
A rising Dollar? This seems a bit poorly timed, the Dollar has risen. I've been watching it rise, and other currencies fall for months. Exchange rates have been stabilizing for a few weeks actually.
Kenan Porobic (Charlotte)
We have to understand the problem correctly. The inflation isn’t a proof that the value of the goods is increasing but that the money is losing its buying power. The money’s value is diminishing because a handful of bankers has fooled the entire society that their personal cleverness and vision could create the enormous wealth overnight and that they should be paid for it accordingly. To justify such a ridiculous claim, they use the financial gimmicks to push the value of the stocks and houses up. The recession is just the unavoidable end of unrealistic expectations and the return of those values to their proper level. Several dozens of top executives cannot make the hundreds of millions of people wealthier overnight. It is theoretically and practically impossible.
Me (NY)
Dollar Milkshake Theory is what it’s been coined and it doesn’t have a great ending.
Kenan Porobic (Charlotte)
We are still looking for any top world economist capable of correctly adding 2+2… “A Rising Dollar Is Hurting Other Currencies. Central Banks Are Stepping In.” The rising dollar is not a cause of the problem but just a consequence. The currencies are losing the value because the central banks presided over creation of the easy money by piling up the national debt and inciting the deficit spending. Since only the hard work creates the new wealth, printing the money dilutes the values of the existing pool of the banknotes. Thus, the value of dollar, euro, juan or ruble is just a mirror image of the central bank policies. Since those bankers lack morality and credibility, they never accept their personal responsibility for the rampant inflation but blame the other currencies, central banks, war in Ukraine, global warming, or energy cost for the consequences of their actions. The bankers never learn. Thus, we have the repetitive recessions. They cannot control their greed, so they push the value of the houses upward to lend more money, but eventually the bubble bursts. They made the same mistake twice in the last 15 years…
AKJersey (New Jersey)
Wrong. The rising dollar is due to the strong US economy, which is actually pulling up weaker economies. It also helps the US by making imports cheaper, thus reducing inflation.
c (Pennsyltucky)
@AKJersey I'm not sure who I should believe. Trained economists who are saying the same thing or a random internet commenter who dissents.
Pat Beulah (Summerland BC)
@AKJersey yeah sure....I got mine too tough for you
phacops1 (superal)
@c Wrlk Pilgrim, the so called trained economists put us in this mess beginning with negative interest rates, ZIRP and QE starting in 2008. They all folded to the fools at our Fed whose theories are now like bugs smashing on a windshield.
Cloves (Brazil)
It's not all bad news provided that the dollar increases in moderation or it will start feeding inflation locally since a lot domestic products are priced internationally in dollar. Commodity exporting countries like Brazil may have its exportation increased considerably at the same time that it will become more attractive to foreign investors. For investors, the strength of the dollar is not the most important aspect, but its volatility. In times like this it helps to have your own currency (sorry EU members), a good amount of foreign currency reserved and a credible and transparent government economic plan for the next five years. Brazil has the first two first items under control, but there are worries about the government economic plan in case of a victory of the opposition in the presidential elections of October 2nd.
Gary Cohe (Great Neck NY)
Wow because of Yellin and Powell’s slow reaction people in the US are really paying a heavy price. The Biden relief package as with all social spending programs needs to be means tested. If Powell or Hellin were in the private sector they would be canned.
bill (Boston)
means testing?- which prpgram of the various Biden relief packages were not means tested? So setting aside the businesss COVID relief - which was abused- all the other packages were/are means tested.
cdisf (SF)
@bill Giving student loan relief to households making $250,000, or the child tax credit to households making $400,000 could be termed “means tested”, or we could just call it a targeted farce. No handouts to the rich!
jwgibbs (Cleveland, Ohio)
Just a brief comment from an engineer (chemical) with little economics training or courses in college (Econ 80 for non-economics majors. University of Pittsburgh, 1964, taught by Dr. Slazenger, Arthur's brother) Like a strong buffered solution trying to be titrated with a string acid or base, the US economy and most economies have tremendous inertias, so trying to change them takes some time and patience. Perhaps those of you remember the chemistry lab in high school or first year college course when with a pipette you tried to neutralize a solution drop by drop. If you went too fast and bypassed the neutralizing point with the neutralizing reagent, bam! the color instantly changed you went too far. Powell might look to the titration process when raising interest rates too fast and not waiting to see what effect they might have with an economy like ours with incredible inertia. Instead of going from inflation to your "soft landing" you may wind up with the dreaded recession. Or in chemical engineering parlance a "pH from 1 to 14", bypassing 7. (Well, I guess it wasn't such a brief comment)
jwgibbs (Cleveland, Ohio)
@jwgibbs strong not string
@jwgibbs Think you make a great point in how the process should work. The problem is that the Fed bought into the "transitory inflation" drivel and kept rates at zero and kept buying Treasuries and mortgages. Our neutralizing point kept moving further and further away.
Louis (FL)
"Since the U.S. economy is on firmer footing compared with the rest of the world" Really? Not because our military is a massive imperial enterprise unmatched in it's ability to influence whole regions of the globe through "Dollar Diplomacy"...pushing our currency outward into circulation...dropping pallets of cash around the globe? Truth is, capital is always and forever risk adverse. That's why China/Russia/India central banks have been buying gold bullion. They're laying the foundation for their own currency...as a group...BRICS. They're not doing it with a pile of dollars like most of the one hundred plus "Central Banks" that have been cooked up in various countries since the 1970's
Scott (NYC)
All that is going to do is trigger recession in the majority of countries. You cannot run with the Big Dog......
US is apparently play "beggar thy neighbor" against the world.
cdisf (SF)
@WSB We’ve contributed 15x more to Ukraine than the EU bloc. We pay 3.6% of our GDP to NATO while Germany stands at 1.3%. It’s our military patrolling near Taiwan to keep the peace. We’re thé country with troops keeping the peace in South Korea. From where I sit in coastal California, I think the US is over subsidizing the rest of the world’s problems. Let the other rich nations pay their fair share for a change.
Judi (North Carolina)
Raising interest rates may be a tougher fix than we imagined, but this does not negate the need for the Feds to stay the course. We are a nation of gamblers, and investors are but one element of this mix. They are the happiest people in the world if stocks are rising and the biggest crybabies when they’re not. They’re the ones who need to make some adjustments - not the Federal Reserve as it plays catch-up. If the Fed is to be the bad guy here, it is because they failed to raise rates years ago. And here we are.
Megan Broh (Portland OR)
Wrong. Companies are sitting on massive profit and revenue, yet continue to gouge the consumer. It’s not investors who need to make adjustments, it’s corporations.
Judi (North Carolina)
@Megan Broh My perspective: it is both. Plenty of greed to go around.
Judi (North Carolina)
@Megan Broh I should add to my earlier response that there are many interconnections to be considered - corporations and the markets, everyday consumers and Washington, specifically, every member serving in every branch of government. The Federal Reserve deserves a special call-out because of its genuflection to the financial markets for decades. It - and we - have arrived at an inflection point. The Fed now must do its job.
Expat in Japan (Tokyo, Japan)
A rising dollar is certainly hurting other currencies like the yen which has lost about a third of its value vs. the dollar since the start of last year, making it the worst performing G10 currency this year. But the strong dollar tells only part of the story. The strength in the dollar has in a way acted as a catalyst in exposing long-standing issues and cracks in the Japanese economy and the yen. The real effective exchange rate of the yen - a measure of a currency’s purchasing power - was already hovering at a 50 year low at the end of 2021. This is according to the Bank for International Settlements, which last December reported that the yen was at its lowest level since 1972 based on its calculations of real effective exchange rates (this is a measure of the value of a currency against a weighted average of several foreign currencies). This had already been weighing heavily on the yen, while eroding its status as a reserve currency and safe haven. The precipitous decline in the yen vs. the dollar we are now seeing is simply this reality catching up with the yen. It is a reflection of the decades long malaise and fundamental weakness in the Japanese economy, Japan’s unsustainable national debt, the country’s loss of innovation, declining competitiveness and dire demographic situation. These problems are only getting worse in Japan, so the yen is likely to stay weak for the foreseeable future.
JeffP (Canada)
Thanks for this analysis. I know Japan has very low immigration and I wonder how this effects it economically. It’s an interesting question as I worry more broadly about the earth and it’s ability to carry ever increasing populations in order to have ever increasing consumption, or at least have a semi-stable economy as per classical economics and politics. Of course it’s complex as there are also valid questions around things like growing inequality, automation, living wages, etc, but I would think at some point we will have to figure out how to have a reasonable standard of living decoupled from constant growth. Not sure how that will play out but I think we need to start thinking about this more.
@JeffP Japan is one of the worst options for immigrants. They hide things when they are inconvenient and look down on people. Yet they claim to be democratic and developed.
Louis (FL)
@Expat in Japan There's a really great documentary about how a very insular and closed and economically successful middle class 80's Japan was 'cracked open' by investment banks. Fascinating story.
Davey Boy (NJ)
“But domestic central banks are not responsible for the global economy, only their own.” This is the crux of the problem, since aggressively manipulating the U.S. economy has vast implications, not all well-understood, for the global economy and for the economies of individual nations . . . And then those implications eventually turn around and come back to haunt the U.S. economy in ways that were unpredicted and unknown when the original manipulations were put into effect . . . And then the cycle repeats . . .
John (Pennsylvania)
There are no concerns about the purchase of US debt. If countries want a return on their US dollar reserves they have no choice but to buy US Treasuries. Of course they could buy other assets like gold of oil but there is not enough of that to soak up the US dollar liquidity. If there is currently less demand for US debt it is because global trade in soft right now.
marty (andover, MA)
Japan has purposely suppressed interest rates for well over 30 years due to its massive debt load and need to finance it at extremely low rates. Of course, that is exactly what has occurred here over the past 14-15 years as our govt. debt has exploded to $31 trillion. The Fed's zero interest rate policy and various forms of QE, to the tune of trillions of dollars, kept longer term rates at extremely low levels as well. It is far easier to finance such debt at rates around 1-1.5% at most, as opposed to perhaps 4-5%. But those extremely low rates and trillions of created dollars resulted in rampant "asset" inflation, seen most vividly in equity and real estate prices. The Fed had no problem with that, and it was only when "goods" prices exploded over the past 18 months that the Fed finally acted. And that was only after a year of dithering with the view that inflation was transitory. And the Fed also had the backing of the "modern monetary theory" crowd who cheered on the creation of trillions of dollars (dismissing the resulting asset inflation)...that is until goods exploded in price. The world is awash in multitudes of debt, from the US to Europe to Asia. The dike had to burst at some point. We are getting closer and closer to that point.
boston doctor (a logical world)
@marty ahhh modern monetary theory being exposed for the fairy tale quackery that it is
Joseph Huben (Western NY)
Of measures that the FED can take to address inflation, it has chosen the most harmful to the majority. Measures that impact the wealthy are not used.
boston doctor (a logical world)
@Joseph Huben since when did you think monetary policy was guided by good will towards the people?
See also