The West’s response to the conflict in Ukraine is being led by America. However, American authorities are having trouble articulating a global response to a global economic slump.
Meetings of finance ministers and central bankers took place this week in Washington at one of the most ominous periods for the global economy in recent memory. There were other concerns on the list, including persistently high inflation, crippling interest rates, anxiety over the escalating energy supply issue, irrational markets, and the U.K. government’s downward spiral.
This week, IMF Managing Director Kristalina Georgieva succinctly summed up the mood among the most influential economic figures in the world: “The worst is yet to come.”
The kind of comprehensive, coordinated effort the U.S. led in prior instances when the world economy was on the verge of collapse is not present in the current.
As national leaders and central bankers around the world concentrate on preventing local crises brought on by increasing inflation and shocks from Russia’s intensifying war in Ukraine, the leadership gap speaks to the overarching issue of the moment. The Federal Reserve is at the forefront as it raises interest rates and increases the likelihood of a recession in an effort to rein in inflation.
As the U.S. head of the Official Monetary and Financial Institutions Forum and a former Treasury official, Mark Sobel remarked, “At the end of the day, a lot of the national policies are on their own course.” “The Europeans will do what they’re going to do, and the Fed will do what the Fed will do.”
After the Biden administration tries to re-engage with the globe in the post-Trump era, the world’s unrest offers the newest test of American power over world events.
Janet Yellen, the Treasury Secretary, has had some success organising a global reaction to Russia’s invasion of Ukraine. In an effort to prevent a significant supply shock and a deeper global recession the following year, she persuaded the G7 leaders to support a restriction on the price of Russian oil. She publicly encouraged American friends this week to speed up financial support for Ukraine.
Beyond Ukraine, Yellen has also urged China to do more to reduce low-income countries’ debt as interest rates increase and has spearheaded American efforts to address the war’s effects on global food shortages.
But compared to the response to the financial crisis of 2008, for instance, when U.S. officials injected money into the world economy to overcome weakness and central banks together slashed interest rates to support demand, the suggestions are modest in scope.
Controlling domestic inflation is currently the Federal Reserve’s and the White House’s top concern, even if doing so would hurt the economies of other countries.
Josh Lipsky, senior director of the Atlantic Council GeoEconomics Center and a former employee of the IMF and State Department, said: “That’s just the truth, and everyone acknowledges that.” That’s the tension, then. The Fed and the Treasury Department cannot attend meetings of the G20 or the IMF and announce that they would all take coordinated action to carry out X. Now, it’s different.
Larry Summers, a former Treasury Secretary who foresaw the current inflation spike long before the Fed stepped in, criticised the World Bank and IMF on Friday for not doing more to address the complex and multifaceted difficulties.
At a gathering of leaders from the finance sector in Washington, he declared, “The fire department is still in the station.” “Somewhere, someone ought to be making a proposal. The response really disappoints me.
The rising value of the dollar puts pressure on countries all over the world, making it more difficult for them to service their debt in dollars and driving up the price of imports, which feeds inflation in their economies. Additionally, as interest rates rise domestically, investors are moving their money from risky international markets and into domestic ones.
The previous chair of the Federal Reserve, Janet Yellen, acknowledged the global macroeconomic difficulties brought on by Russia’s conflict in Ukraine as well as the spillover effect that growing interests are having elsewhere.
She remarked of her discussions with her international counterparts: “This week has left us better informed and better coordinated.” “We are committed to completing the tasks at home. Additionally, we are all working together to meet our common issues.
Potential leaders in Europe include Christine Lagarde, the president of the European Central Bank and the former IMF, who was instrumental in coordinating the international response to the European debt crisis a decade ago. Lagarde is constrained by high inflation, which has caused the central bank to quickly tighten policy this year, just like Fed Chair Jerome Powell.