Well, last week’s meetings of the IMF and World Bank weren’t exactly the equivalent of an Inaugural Ball.
In fact, there apparently wasn’t much festiveness at all. Instead, Neil Irwin and Courtenay Brown report, there was – and is – “a deep sense of foreboding among the world's financial elite.”
One Near East financial official said at a Group of 30 event on Saturday, we have entered "an era of enduring uncertainty and fragility."
Irwin and Brown warn that leaders around the globe “face a situation in which the policy toolkit of the 2010s is no longer readily available.
“Fiscal and monetary policy is constrained by the pandemic, war and climate change.”
On the one hand, things in the nation’s capital appeared on the surface similar to how they looked before the pandemic was unleashed:
Limos lining up at luxury hotels and crowded gates at Dulles International Airport for the Saturday night Lufthansa flights to Frankfurt; too big to fail banks throwing top-shelf receptions attended by badge-wearing people in dark suits. You get the picture.
But the challenges that now lie beneath that growingly unstable surface have changed in a profound way since then.
The Federal Reserve and their international peers are aggressively – some say obsessively – raising interest rates to try to bring down inflation, after a decade that saw central banks trying novel and, in many instances, untested, methods to goad prices higher.
Boy, did that ever work!
A major study out last Friday finds that the Federal Reserve has never reduced inflation from high levels, much like today’s, without causing a recession.
The paper was written by a group of leading economists, with three current Fed officials addressing its conclusions at a conference on monetary policy.
When inflation takes off, as it has over the past two years, the Fed normally reacts by raising interest rates – sometimes forcefully – to try to put the brakes on price increases and cool the economy in the process.
The higher rates, directly or indirectly, make mortgages, car loans, credit card debt and commercial lending more expensive.
But sometimes – again, like today – inflation remains stubbornly high, requiring even higher rates to rein it in.