WPS 2016-03: The Federal Reserve Since the Global Financial Crisis: Do Foreign Interests Matter to the World’s Economic Hegemon?

Marka Peterson

During the 2007-2008 global financial crisis, the Federal Reserve (Fed) took sweeping steps to help rescue the global economy, which suffered as much or more than the U.S economy. This paper examines whether the Fed’s international activities during and since the crisis indicate the Fed has become more attuned to the interests of others outside the U.S. To do so, the paper considers three main ways of characterizing action – other-regarding, reflecting enlightened self-interest, or reflecting narrow self-interest, and analyses a series of Fed policy actions according to these categories.  I find the Fed has acted with a mix of enlightened self-interest and narrow self-interest, and in particular that it acted narrowly self-interested when it perceived that the U.S.’s interests are so dominant that they are global interests, and when it perceived that the dominance of U.S. interests cause those interests to diverge from other global actors’ interests.  I also find that the Fed is more internationally oriented than immediately before the crisis, but has been internationally oriented at various times in its history.  Finally, the paper briefly considers the implications of these conclusions, particularly in light of the increasing complexity of the global economy and the ways that the U.S. does and does not continue to dominant and control that economy.

16-03 Marka Peterson