Last week, the spring meetings of the IMF and World Bank took place in Washington D.C. Traditionally, the IMF has had a crisis theme (pre-, mid-, and post-), and often there has been one country being discussed by all delegations more than others, in most cases the country being the epicentre of the crisis. In recent years for example one can distinctly remember the cases of Greece and the so-called PIIGS (2014-2015), or, more recently, the UK (2022).
Delegates from all over the world come to “the capital of the empire” to exchange views on how the crisis could be resolved, or its global repercussions, and to hear – from the horse’s mouth – what the solution could or should be, according to the textbook solution adhered to by the mainstream economists of the Fund, whose major shareholder is the US.
And so it is with a sense of bewilderment that the delegates coming from all over the world approached their first meetings in which the epicentre of the crisis was, in fact, the host country, the US. The country that is supposed to provide the solutions, however imperfect, was in fact the epicentre of the crisis that everybody has been talking about. All the meetings inevitably started and finished with a question on the US, and the discussion was mostly dedicated to recent policy decisions – and U-turns – by the US administration – on trade policy, fiscal policy, the dollar, the position of the Fed Chair Powell, etc.
To mention only the economic realm, it is patently obvious that the set of policies that this administration is trying to implement are inconsistent one another. You cannot possibly want to have the strongest economy in the world, with record low levels of unemployment, while at the same time having low (policy and market) interest rates. You cannot have high tariffs and low inflation. You cannot have mass deportations and full employment. You cannot try to prop up the dollar as the world’s reserve currency while trying to encourage other countries to strengthen their currencies versus the USD, or introduce other forms of currency (such as stablecoins pegged to the USD) while preserving the global currency status of the dollar.
But considering other policy areas as well, it is also clear that you cannot seriously attract further investment in the country (the stated objective of the tariff regime) while undermining the rule of law with continued attacks to law firms, or by ignoring the unanimous rulings of the Supreme Court and even arresting judges in courthouses. The rule of law is the number one reason why most investors have recently preferred Anglo-Saxon jurisdictions such as the US and the UK for their foreign direct or portfolio investments.
Before the meetings started, Trump had made U-turns in all his flagship proposals, including on the idea of firing Chair Powell, and during the week Treasury Secretary Scott Bessent did a good job in reassuring delegations about the fact that there are “adults in the room.” So, markets took a breather from the EM-style simultaneous sell-off of all US assets (equities, bonds, credit and USD). But don’t be fooled. This is just a reprieve. The policy goals have not changed, nor the actors pursuing them. There will be further attempts, which may ultimately prove to be successful. So enjoy the reprieve, while it lasts.
