How the Fed Is Shaking the Entire System
\u201cThere are moments when history making creeps up on you,\u201d writes the economic historian Adam Tooze. \u201cThis is one of those moments.\u201d\n\nCountries 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.\n\nWe\u2019re 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.\n\nTooze 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 \u201cpolycrisis\u201d unlike any the world has seen. And he and others have argued that the U.S. Fed\u2019s decision to raise interest rates is a core driver of that crisis.\n\nSo this is a conversation about the fragile, uncertain future of the global economy at this history-making moment and the Fed\u2019s 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 \u201cpolycrisis,\u201d 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.\n\nMentioned:\n\n\u201cSlouching Towards Utopia by J Bradford DeLong \u2014 fuelling America\u2019s global dream\u201d by Adam Tooze\n\nBook recommendations:\n\nThe Neapolitan Novels by Elena Ferrante\n\nYouthquake by Edward Paice\n\nSlouching Towards Utopia by J. Bradford DeLong\n\nThoughts? Guest suggestions? Email us at ezrakleinshow@nytimes.com.\n\nYou can find transcripts (posted midday) and more episodes of \u201cThe Ezra Klein Show\u201d 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.\n\n\u201cThe Ezra Klein Show\u201d is produced by Annie Galvin, Jeff Geld and Rog\xe9 Karma. Fact-checking by Michelle Harris, Rollin Hu, Mary Marge Locker and Kate Sinclair. Original music by Isaac Jones. Mixing by Jeff Geld. Audience strategy by Shannon Busta. Special thanks to Kristin Lin, Kristina Samulewski, Jason Furman, Mike Konczal and Maurice Obstfeld.