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I agree with Zandi’s diagnosis, which is exactly why a Fed hike here would look more geopolitical than economic to me. Raising rates cannot produce more oil, repair damaged energy infrastructure or remove tariffs. What it can do is suppress demand. And because the Fed tightens through a dollar based global financial system, the effects do not stop at the U.S. border. A stronger dollar raises the local currency cost of servicing dollar debt, makes dollar priced energy and imports more expensive, pulls capital toward U.S. assets and can force foreign central banks to choose between currency weakness, reserve depletion or keeping their own rates painfully high even as growth deteriorates. So if the Fed hikes into an economy already absorbing an energy shock and weakening beneath the surface, I would read that as a willingness to accept domestic damage while maintaining maximum pressure through the dollar system. Rivals with dollar liabilities or heavy energy import dependence feel it, but so do allies with weak currencies, large external financing needs or vulnerable bond markets. That does not prove geopolitical intent, because the Fed’s stated mandate remains domestic inflation and employment. But if policymakers knowingly tighten into supply driven inflation anyway, the international consequences are so obvious that I would have a hard time viewing them as merely incidental.

onechancefreedm ↗