The RBA was interrogated by Parliament today regarding its monetary policy stance and interest rates. But it was all a bit pointless as really the Federal Reserve sets interest rates in the US, but effectively also for the entire world, given the fact that the US dollar behaves as the reserve currency.
Persistently high inflation in the United States and elsewhere has forced the Federal Reserve to aggressively raise interest rates, giving the dollar a significant yield advantage that has triggered a rampaging rally against its major global peers. That will put pressure on the RBA.
Eventually, the Fed’s actions will come back to bite it and the US. By then all the many trillions of dollars of stimulus work done during the pandemic will have been unwound. What a phenomenal waste of time, money and effort.
The fallout on the FED’s myopia will be felt more in other countries, including Australia, which means we are on the end of the see-saw driven by the US. This is soft power at its worse, transmitted to a monetary system which is built to favour one nation over the rest.
The question is of course whether this will change. Without major reform it will not, not least in recognition of fact that many international institutions such as the IMF, WEF and BIS are strongly aligned to the interests of the US. So The Monetary Arms Race Is Here.
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