Yellen aware of ‘spillovers’ affecting world economies

Treasury secretary Janet Yellen said the United States and other leading economies must be cognisant of “spillovers” stemming from their responses to economic challenges.

“Our policies do have spillovers and, of course, many countries are concerned with the spillovers from US policy on their exchange rates with the US dollar being so strong,” Yellen told reporters in Bali, Indonesia, where world leaders gathered for the Group of 20 (G20) summit.

The US Federal Reserve (Fed) has lifted interest rates by almost four percentage points this year in an aggressive effort to tackle inflation.

That has caused headaches for many countries, however, as dollar-priced commodities have become more expensive and dollar-denominated debt is now harder to pay back.

“We’re very worried about debt” among low-income countries, she said.

The Treasury chief said the woes currently dogging economies around the world were “very unusual” in that they varied widely by country. She contrasted that with the situation following the financial crisis of 2008-09.

“After the global financial crisis, countries could band together,” she said. “But now countries have different amounts of fiscal space, different inflationary pressures.”

Yellen has consistently signalled her support of the Fed’s moves to bring down the worst bout of inflation in 40 years. Yet the remarks signal an awareness that US policy has consequences around the world.

Yellen also spoke of 2022 as a challenging year for the G20, a forum meant to foster collaboration among the world’s largest economies.

The US has pushed for the group to condemn Russia over its invasion of Ukraine. With Russia and some other G20 members resisting, that has prevented the group from issuing joint communiqués following several high-level meetings.