The Unstoppable Dollar

The Federal Reserve's focus on taming inflation is inflicting a world of pain on other economies

- Benjamin Purvis, David Rocks, Rebecca Penty

The mighty dollar is steamrolling everything right now, causing issues for economies almost everywhere-except the US. That means that, for now at least, it's not America's problem and the historic central-bank-fueled surge in the greenback is unlikely to abate soon.

By some measures the US currency is already stronger than ever, eclipsing the highs from early in the Covid-19 pandemic. The pain it's inflicting has echoes of the mid-1980s, when foreign exchange chaos forced the world's top finance officials to impose a joint solution on markets. This time, though, it's every country for itself as the US pushes back on the idea of coordinated market action.

With the risk of economic damage spreading, officials from Tokyo to Santiago have been drawn into the fray to prop up their currencies. But Federal Reserve Chair Jerome Powell is squarely focused on fighting inflation at home, doubling down on rate-hiking plans that have supercharged the dollar. Treasury Secretary Janet Yellen reckons markets are working as they should.

A combination of alluring US interest rates and the comfort of feeling your money is safer in dollar assets is helping the greenback. In more normal times, officials might welcome currency weakening, which tends to stimulate growth by making exports more competitive while encouraging consumers and businesses to buy local. But these aren't normal times. The problem bedeviling policymakers is high inflation-and weak currencies add fuel to that by increasing the cost of imports and stimulating domestic growth. So some countries need to respond.