Financial markets are in chaos. What next for the real economy?

The federal reserve began raising interest rates to battle inflation in America a full six months ago. But its determination to crush surging prices, whatever the cost to the economy, is only now starting to sink in. The central bank’s latest policy meeting, which ended on September 21st, has been followed by dramatic moves in financial markets across the world. The economic consequences will be a little slower in coming, but no weaker for it.

After the meeting, Jerome Powell, the Fed’s chairman, said the central bank was “strongly resolved” to bring down inflation, currently at 8.3%, to its target of 2%. That resolve sent government-bond yields surging and stockmarkets tumbling. Yields on ten-year Treasuries rose by nearly half a percentage point. On September 28th they spiked above 4% for the first time since just after the global financial crisis, before falling a little. Higher rates in America have turbocharged the dollar. The dxy, an index of the greenback against half a dozen major currencies, has risen by nearly 18% this year, and is now at its highest in more than two decades.