Jerome Powell’s actions have caused a flood of money to flee the shores of other countries for safer American investments that offer a much more attractive payoff.
Shuji Kajiyama/AP Photo

The Fed’s moves have already led the Bank of Japan to move on currency markets. BOJ Governor Haruhiko Kuroda and his fellow central bankers last week left interest rates in sub-zero territory and said they have no plans to raise them anytime soon. But Japanese authorities also took unexpected action, after the Fed raised rates by another three-quarters of a percentage point, to prop up the value of the yen — an action the U.S. Treasury Department made clear it is watching closely but stopped short of condemning.

“We understand Japan’s action,” a Treasury spokesperson said in a statement, adding that the U.S. did not participate in the move.

A key question is what type of pain abroad would be enough to lead U.S. policymakers to change course and pursue more concerted policies to lighten the burden on other countries, such as debt relief through the IMF.

“Certainly, if we get to the point where there are cascading defaults in emerging market countries that are contributing to global financial stress, that’s the thing that starts to get at least some attention,” said Tobin Marcus, a senior policy and politics strategist at Evercore ISI who previously advised then-Vice President Joe Biden. “But even so, things would have to be quite bad along that vector to see the kinds of spillovers that would unavoidably grab the attention of policymakers in the U.S.”

Rather than working together to steer foreign exchange markets, global central banks could also consider coordinating interest rate increases to avoid raising borrowing costs too high, argued Peterson Institute fellow Maurice Obstfeld in a recent paper.

Still, for the Fed, those decisions will primarily be driven by the extent to which they threaten the U.S. economy. The central bank is tasked with pursuing both price stability and maximum employment, noted Simon Johnson, a professor at MIT Sloan School of Management and former IMF chief economist.

“There’s nothing in their mandate about global anything,” he added.