"Fed-engineered recession may speed dollar bloc’s collapse"
I am a regular contributor to Geopolitical Information Service (GIS). This is from my latest article at GIS:You can read the rest here (pay wall)
The year has not started well for global financial markets. Undoubtedly, one reason that stocks have slumped is that the United States Federal Reserve under Janet Yellen has started to raise interest rates and signaled that more hikes are coming.The hawkish stance of Ms. Yellen’s Fed not only risks derailing the U.S. economy and throwing it back into recession, but it could also exacerbate the tensions observable for some time within what we have called the “dollar bloc.”
For the past six months, Ms. Yellen has been very eager to signal that the Fed should raise interest rates. This policy stance has clearly been motivated by a continued decline in the unemployment rate. The Fed chair is being guided by the Phillips curve, which posits a negative trade-off between unemployment and inflation. According to this theory, if unemployment drops, inflation will rise.