Financial leaders have been quick to act decisively to prevent the potential collapse of Silicon Valley Bank and Credit Suisse, indicating their determination to contain systemic risk. However, Harvard University professor and former chief economist at the IMF Kenneth Rogoff has noted there are several differences between today’s financial landscape and that of the 2008 financial crisis. Inflation remains an issue in the US and Europe, global debt has soared, and China’s position is weaker. Beijing’s fiscal stimulus following the 2008 crisis maintained global demand and could not be replicated. Furthermore, geopolitical tensions are higher now, with Russia’s war in Ukraine accounting for a significant portion of the inflation problem. With rising central bank rates likely to cause business casualties and further defaults by low-middle income countries, financial pressure on lightly regulated “shadow banks” could increase. Governments may no longer face sovereign debt crises but could be susceptible to partial default through high inflation. As the Federal Reserve weighs rate policy for next week, it is expected to opt for a 25 basis point increase in interest rates, while facing challenging trade-offs as downward pressures on inflation and interest rates diminish.
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