 Will the Strong Dollar Trigger a Global Recession?Steven Kamin
AEI Economics Working Papers from American Enterprise Institute Abstract: In recent months, as inflation has stubbornly refused to back down and the Federal Reserve threatens ever more monetary tightening, a fearful narrative has taken hold: Rising U.S. interest rates are boosting the dollar to record levels, forcing cheaper currencies and higher import costs onto economies already struggling with skyrocketing energy and food prices. In order to keep the lid on soaring inflation, foreign central banks must further tighten their own monetary policies, pushing the world into a global recession. Moreover, higher U.S. interest rates and a stronger dollar are putting special pressure on emerging market economies (EMEs), which must repay their dollar debts with ever-cheaper local currencies. There is more than a grain of truth in these concerns. A rising dollar helps cool the U.S. economy but inevitably involves exporting a certain amount of inflation abroad. And, historically, tighter Fed policies have meant plunging currencies, rising credit spreads, and disruptive capital outflows for EMEs. However, much of the current discussion exaggerates the role of Fed tightening and dollar appreciation in darkening prospects for the world economy. Keywords: Federal Reserve; Global Economy; Inflation (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:aei:rpaper:100862466311 Access Statistics for this paper More papers in AEI Economics Working Papers from American Enterprise Institute Contact information at EDIRC. |
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