Jerome Powell, chairman of the U.S. Federal Reserve (Photographer: Andrew Harrer/Bloomberg)

What Happened This Week in the World Economy and Why It Matters

(Bloomberg) -- Predictable, and still a bit jarring: The Federal Reserve forged ahead on the tightening path, and big-buck tariffs between the U.S. and China took effect, plunging those two economies further into trade hostilities.

Meanwhile, the Bank for International Settlements warns that central banks aren’t ready for a storm that could be coming.

Here’s our weekly wrap of what’s going on in the world economy.

Central Bank Trials

The Fed stole the spotlight this week even as analysts widely anticipated the hike and see plenty more coming as Chief Jerome Powell looks past presidential tweets and cites a bright economy. Mario Draghi stirred up some debate about what “ relatively vigorous” inflation might mean for the ECB’s interest-rate path, while the ECB’s chief economist played down the comments to calm the euro. Adding to the tightening cycle this week were Hong Kong, the Czech Republic, Indonesia and the Philippines, aiming to stabilize their currencies and inflation. New Zealand and Taiwan held. Argentina has a new central bank chief after the old one resigned to pave the way for a bigger-cash deal with the IMF. 

What Happened This Week in the World Economy and Why It Matters

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Trade Ups, Downs

It’s really here: The trade war started in earnest this week with the U.S. and China digging in with high-dollar tariffs. China says it won’t be threatened into talks, and has outlined terms of engagement while also appealing to U.S. midterm voters in Iowa. World leaders at UN meetings rebuked the whole trade war, and the man behind the world’s biggest sovereign wealth fund is estimating worst-case portfolio damage. The EU, China and Russia plan to defy Trump by keeping up trade ties with Iran. Japan-U.S. trade talks are set to restart, while South Korea notched a revamped pact. Canada, still working on its own deal, tried to mute Trump’s attacks on the WTO by issuing a plan to beef up the trade body.

For America’s part, it’s possible Trump still retains the upper hand in the trade skirmishes with China, at least for now, Bloomberg Economics shows. The U.S. is pushing on all of China’s buttons, approving a new military sale to Taiwan. In the midst of all the turbulence, U.S. consumer confidence jumped unexpectedly to an 18-year high. Here’s a QuickTake on how the U.S.-China drama goes far beyond trade.

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Emerging Markets’ Wild Ride

Brazil saw its 2018 inflation expectations jump by the most on record, following a sharp depreciation in the real. India raised import duties in a bid to stabilize the rupee, but also saw some good news: an upshot for the weaker rupee in software export gains and another estimate on its rise against global peers. Things are still better than the “taper tantrum” days. That two-year-old cash ban in India, meanwhile, appears to have produced mixed results.

What Happened This Week in the World Economy and Why It Matters

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Weekend Reading

Chart of the Week

What Happened This Week in the World Economy and Why It Matters

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