Will Fighting Inflation in America Cause a Debt Crisis Abroad?

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On March 16, Jerome Powell, the chair of the U.S. Federal Reserve, announced that the central bank would hike interest rates to 0.25 percent. It was likely just the first in a sequence of rate increases designed to tame stubbornly high inflation. Since the start of the year, the Fed chair and his colleagues have indicated that the central bank would be raising short-term rates and have reiterated that the Fed was committed to taking “the measures necessary” to reduce inflation.

Economists have debated the extent to which this bout of inflation is the result of expansionary fiscal and monetary policy—low interest rates and large amounts of government spending, particularly transfers to households—or of pandemic-specific factors, including disruptions to global supply chains and, consequently, rising prices for commodities and manufactured goods. It remains unclear whether the rate increases the Federal Reserve has planned out will be sufficient…

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