Policymakers around the world are facing challenges from a strong US dollar and high interest rates, as noted by Mohamed El-Erian, president of Queens College, Cambridge. He noted that authorities are not sure how to react to a strengthening dollar and rising interest rates in the US, as these factors could have a negative impact on other economies. El-Erian pointed to the yen's fall below 154 to the dollar this year as an example of Japanese policymakers' inaction in the face of currency volatility.
Despite the resilience of the global economy, El-Erian warned that certain sectors with unbalanced balance sheets and countries with unsustainable debt are particularly vulnerable to tighter financial conditions. He pointed out that economic growth is unevenly distributed around the world, leading to divergence in policy approaches and economic outcomes. El-Erian also expressed concern about the potential for a regional banking crisis if the Federal Reserve decides to raise interest rates in response to worsening inflation.
Overall, El-Erian believes that while a Fed rate hike is unlikely, it is not impossible. He warned of the potential consequences of such a move, including market turmoil and financial instability. In conclusion, policymakers are faced with complex challenges, and the global economy is likely to experience significant deviations in the near future.