Absent from the frenzy: The kind of sweeping, coordinated effort the U.S. has led in previous episodes when the global economy was on the brink.
The leadership gap speaks to the overriding challenge of the moment, as national leaders and central bankers across the globe focus on averting domestic crises triggered by surging inflation and shocks from Russia’s escalating war in Ukraine. The Federal Reserve is at the forefront, as it ratchets up interest rates and fuels recession risks in a bid to control rising prices.
“At the end of the day, a lot of the national policies are on their own course,” said Mark Sobel, U.S. chairman of the Official Monetary and Financial Institutions Forum and a former Treasury official. “The Fed is going to do what the Fed is going to do, and the Europeans are going to do what they’re going to do.”
The global turmoil provides the latest test of U.S. influence over international affairs, after the Biden administration sought to re-engage with the world in the post-Trump era.
Treasury Secretary Janet Yellen has had some success in rallying an international response to Russia’s invasion of Ukraine. She persuaded G7 leaders to back a cap on the price of Russian oil in a bid to avert a major supply shock and a deeper global downturn next year. This week she publicly urged U.S. allies to accelerate economic support for Ukraine.
Beyond Ukraine, Yellen has also called on China to do more to provide debt relief for low-income countries as interest rates rise, and has led U.S. efforts to address global food insecurity stemming from the war.
But the proposals are limited in scope compared to the response to the financial crisis of 2008, for example, when U.S. officials pumped money into the global economy to counteract weakness and central banks together cut interest rates to prop up demand.
Today, the No. 1 priority for the Federal Reserve and the White House is controlling inflation at home — even if it means economic pain for the rest of the world.
“That’s just the reality, and everyone recognizes that,” said Josh Lipsky, Atlantic Council GeoEconomics Center senior director and a former IMF and State Department aide. “So that’s the tension. It’s not that the Fed and the Treasury Department can come to the G20, or the IMF meetings and say, ‘We are all going to do X together in a coordinated way.’ It’s different now.”
Former Treasury Secretary Larry Summers — who warned of the current inflation surge well before the Fed intervened — on Friday blasted the International Monetary Fund and World Bank for not doing more to address the complex and cross-cutting challenges.
“The fire department is still in the station,” he said at a gathering of finance industry executives in Washington. “Somebody should be proposing something somewhere. I’m very disappointed in the response.”
Nations around the world are facing strain from the surging value of the dollar, which makes their dollar-denominated debt payments more expensive and increases the cost of imports — further feeding inflation in their economies. Higher rates in the U.S. have also led to an exodus of cash away from riskier foreign markets and into American ones.
Yellen, a former Federal Reserve chair, acknowledged the spillover effect that rising interests are having abroad, as well as the global macroeconomic challenges stemming from Russia’s war in Ukraine.
“This week has left us better informed and better coordinated,” she said at a press conference Friday of her meetings with her global counterparts. “We are determined about the jobs we have to do at home. And we are united around our collective effort to tackle our shared challenges.”
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