Biden praises the US because the “strongest economy in the world” but its high inflation angers its allies as their currencies collapse

The resistance of central bank governors and treasury secretaries meeting on the spring meetings of the International Monetary Fund and World Bank shows how the sting of a booming U.S. economy – manifested in high rates of interest and a powerful dollar – is ricocheting all over the world and forcing others Currencies lower and complicated plans to scale back credit costs.

Just as officials arrived within the US capital, Chairman Jerome Powell issued a warning on Tuesday that the Federal Reserve’s long-awaited rate of interest cuts can be further delayed resulting from disappointingly high US inflation readings.

That shift set the tone for the confab, triggering a worldwide sell-off in government bonds that pushed yields to their highest in months and put pressure on various currencies, including the yen, which is at its lowest level against the dollar since 1990 reached. Japanese and South Korean authorities sought to boost their currencies, while Indonesia urged state-owned firms to achieve this Wait on large dollar purchases and Malaysia issued an intervention warning.

“Of course it is worrying,” said IMF Managing Director Kristalina Georgieva on Thursday, referring to the strengthening dollar. “All eyes are on the US,” with many delegations in Washington wondering how long the Fed will wait before cutting rates of interest. “That’s what I’m hearing from countries,” she said in an interview with Bloomberg Television surveillance.

New IMF forecasts show how much of an outlier the US is. The fund raised its U.S. growth outlook in 2024 to 2.7% from 2.1% in January – greater than twice as fast as its Group of Seven counterparts.

While that helps support global growth, it also means the U.S. is “slightly overheated,” Georgieva said, thanks partly to Washington’s fiscal stance Budget gap heading towards 7% of GDP.

Her colleague, IMF chief economist Pierre-Olivier Gourinchas, said earlier this week that the U.S. budget stance poses “longer-term risks to fiscal and financial stability for the global economy.”

German Finance Minister Christian Lindner was more outspoken, criticizing the Biden administration’s industrial policies, including the so-called Inflation Reduction Act, which provides subsidies for clean energy and the electrical vehicle sector.

Lindner warned his own country against such a policy and said on Wednesday: “I don’t want that.” be rudeBut if we have a look at the economic development within the USA, the inflation rate is higher again and that’s forcing the Fed to react.”

Treasury Secretary Janet Yellen heard her counterparts from South Korea and Japan complain in regards to the weakness of their exchange rates on the identical day – nods address their concerns in a joint statement with Asia’s two predominant allies.

Political independence

A standard thread amongst many finance chiefs in Washington this week was an insistence on political independence.

While Brazilian Finance Minister Fernando Haddad said the Fed’s delay would trigger a reassessment of worldwide markets, his central bank colleague Roberto Campos Neto stressed that his country’s external balance sheet was very strong – helping to distinguish its position in comparison with others.

Lesetja Kganyago, governor of the South African central bank, said: “We are watching the Fed. We don’t follow the Fed.” Still, he said on Bloomberg TV that “the Fed’s actions are having a big impact on global financial markets.”

There was also a minimum of one expression of envy.

“I wish I had this unemployment rate,” Carlos Cuerpo, Spain’s economy minister, said in an interview with Bloomberg, pointing to the two-year rise in U.S. unemployment below 4%.

The reckoning is coming

But in accordance with European Commission Vice President Valdis Dombrovskis, a reckoning could also be inevitable. “Of course, all of this will warrant a discussion in the U.S. about the direction of fiscal policy and whether a little more caution is needed,” he told reporters.

According to the Congressional Budget Office, U.S. debt held by the general public is anticipated to achieve $48.3 trillion, or 116% of GDP, by 2034, up from 97% at the top of 2023.

It’s not only US rates of interest which can be attracting global attention.

As he toured Pittsburgh, Biden vowed to support the United States Steel Corp. to be kept and retained in American ownership demanded higher tariffs on Chinese steel and aluminum as he sought to woo union staff ahead of the November election.

“America is rising,” Biden said. “We are the strongest economy in the world.”

But the renewed use of business policy, export controls and other protectionist measures can also be fueling a backlash amongst trading partners.

“The subsidy race is a race to the bottom and we should not go in that direction,” said European Central Bank President Christine Lagarde.

If former President Donald Trump is re-elected, trade protections are prone to tighten. Trump’s plan to extend tariffs on U.S. imports would trigger a free-for-all in the worldwide trading system that renders existing rules useless and harms every economy, World Trade Organization Director-General Ngozi Okonjo-Iweala said.

“The big elephant in the room here is the U.S. election,” said Marcelo Carvalho, London-based economist at BNP Paribas.