US Tactics Against Inflation Affects Rest Of The World

As the Federal Reserve begins to raise interest rates to tackle the highest inflation the United States has seen in decades, its aggressive efforts can have major, unpredictable effects around the world, often with long-lasting, negative consequences for countries in the Global South, reported The New York Times on Thursday.

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"And the United States will not be immune to worldwide economic trends. The inflation hawks should consider all of this as they figure out how to address rising prices in the United States today," said the NYT report, adding that "history is a good guide to how destructive the Fed's policies can be for the rest of the world."

During the 1980s, after several years of rising prices, the Fed raised the federal funds rate, namely the interest rate that banks charge one another for short-term borrowing and which guides other interest rates, up to nearly 20 percent. By the end of 1982, unemployment had reached 10.8 percent in the United States, but inflation slowed.

The effects of the Fed's decisions were felt beyond the United States' borders - as interests rates rose, debts accrued by foreign countries became more difficult to service, leading to a wave of defaults among countries that had borrowed heavily on international markets in the years before, first with Mexico in 1982 and then throughout Latin America and beyond.

In developing countries, the debt crisis that followed was profoundly traumatic, said the report, noting that "across Latin America, it led to a collapse in GDP, rising unemployment and skyrocketing levels of poverty, from which the region made a slow and imperfect recovery over the 'lost decade' that followed."

"But American policymakers at the time did not give much attention to the global repercussions of their decisions," it said, adding that then Fed chair Paul Volcker himself later admitted "Africa was not even on my radar screen."

The U.S. general price index increased from 7.6 in February to 8.5 in March. Despite the fact that this inflationary trend is consolidating, President Joe Biden decided to expand federal spending by increasing the billionaire financial resources destined to support Ukraine.