The Challenge of Global Disinflation
When many countries raise interest rates at once, there’s a risk that tightening will go too far.
What about the rest of the world?
Photographer: Al Drago/Bloomberg
Central banks in much of the world are raising interest rates faster than would’ve seemed likely only a few months ago. Some analysts fear this multinational effort to curb inflation might tighten monetary policy too much. They note that any increase in rates involves a kind of spillover effect: It lowers demand not only for domestic output but also for imports. Failing to take account of this could cause an unintentionally sharp global downturn.
The issue will occupy finance ministers and central bankers gathering in Washington this week for meetings of the International Monetary Fund and World Bank. Might formal international coordination of policy be the answer? In an ideal world, it would be. In practice, it’s unlikely to work.