Opinion by Megan McArdle: The pound is weak and the dollar is strong because the United States is relatively attractive for investors seeking a safe haven for their money.
For all our many problems, the United States is currently in an enviable position among rich nations. Yes, inflation is too high. Yes, companies are announcing layoffs as the Federal Reserve’s interest-rate increases cut into consumer confidence and corporate bottom lines. Yes, our politics are poisonous. And no, I do not think we will be able to avoid at least a shallow recession over the next year or so.
But for all that, recovery from the economic effects of the pandemic in the United States came early. That meant we were hit by inflation sooner than other countries, as consumers celebrated their liberation by trying to buy more goods and services than supply chains could deliver. By the time other countries recovered, they were competing with exuberant Americans for deliveries, and high inflation became a global phenomenon.
Higher interest rates made U.S. assets more attractive to global capital. To buy these assets, people and companies first had to buy dollars with whatever other currencies they had. This effect has been exacerbated by the “flight to quality” that always takes place in times of uncertainty. Inflation in the United States — now 7.7 percent year over year — is relatively quiet compared with what has happened in many European countries that were exposed to the soaring cost of gas when Russia cut off supplies. Inflation is
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