Will Powell Get Greenspan’s ‘Oasis’ Feeling?
Friend and foe alike are undercut by the muscular greenback. This is the tension between the Fed’s US responsibilities and global leadership.
Dollar strength is becoming a problem.
Photographer: Kiyoshi Ota/If recent market tumult serves any constructive purpose, it may be as a reminder that US economic clout remains very formidable. From the collapse in the British pound to Japan's once-in-a-generation market intervention, alarm in South Korea about its southbound currency and the worrying swoon in the Chinese yuan, the underlying driver is an epic rally in the dollar.
The hyper-charged greenback is the product of aggressive interest-rate hikes by the Federal Reserve and the promise of more to come. It's not just that rates are marching higher — inflation requires it — that's undercutting almost every other country and making a global recession more likely. The Fed's unwillingness to step back from big increases in borrowing costs is trapping policymakers around the world in a fire-fighting mentality that’s unlikely to end well.