How the Fed Is ‘Shaking the Entire System’

“There are moments when history making creeps up on you,” writes the economic historian Adam Tooze. “This is one of those moments.”

Countries across the world are raising interest rates at unprecedented speeds. That global monetary tightening is colliding with spiking food and energy prices, financial market instability, high levels of emerging market debt and economies still struggling to recover from the Covid pandemic. Alone, each of these factors would warrant concern; combined, they could be catastrophic.

We’re already beginning to see what happens as these dynamics intersect: Britain just experienced a bond market meltdown that threatened one of the most advanced financial systems in the world. Developing countries like Sri Lanka, Argentina and Pakistan are experiencing political and economic crises. The World Bank believes we could be headed for a severe global recession.

Tooze is the director of the European Institute at Columbia University and the author of multiple histories of financial crises and near crises and of the excellent Chartbook newsletter. He believes this particular confluence of high inflation, rising interest rates and high levels of debt points to an economic “polycrisis” unlike any the world has seen. And he and others have argued that the U.S. Fed’s decision to raise interest rates is a core driver of that crisis.

So this is a conversation about the fragile, uncertain future of the global economy at this history-making moment and the Fed’s role in it. We discuss what the British financial market meltdown means for the rest of the world, how the interest rate hikes in rich countries export inflation to other countries, the looming possibility of a global recession, why Tooze believes something could break in the global financial system, why countries in South Asia are experiencing a particularly severe form of “polycrisis,” how the Fed should weigh its mandate to bring down inflation against the global consequences of its actions, why he believes analogies to the American inflationary period of the 1970s are misguided and more.

Mentioned:

“Slouching Towards Utopia by J Bradford DeLong — fuelling America’s global dream” by Adam Tooze

Book recommendations:

The Neapolitan Novels by Elena Ferrante

Youthquake by Edward Paice

Slouching Towards Utopia by J. Bradford DeLong

Thoughts? Guest suggestions? Email us at ezrakleinshow@nytimes.com.

You can find transcripts (posted midday) and more episodes of “The Ezra Klein Show” at nytimes.com/ezra-klein-podcast, and you can find Ezra on Twitter @ezraklein. Book recommendations from all our guests are listed at https://www.nytimes.com/article/ezra-klein-show-book-recs.

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