Temperatures in many parts of the United States were abnormally hot in July. Many places throughout the southwest broke new daily records for the average number of days above ninety degrees Fahrenheit. Similarly, July was an even busier month than usual in terms of meaningful economic events, and on top of that, there was a spike in stock market volatility. Investors showed their reflexivity and elasticity to market rate changes and events with big economic implications.

Stagflation is a misnomer, mused the great twentieth-century American economist Milton Friedman. Stagflation is not simply a period of slow economic growth and rising prices, it’s a cycle of inflation causing stagnation, concluded the monetarist sage. Freidman’s comments likely highlight how economic growth is hard to achieve during inflationary cycles since interest rates must remain elevated to strip inflation from the economy. Intuitively, above average rates are typically countercyclical for growth.

Higher interest rates in the US may be starting to countercyclically affect outside economies because of the strong demand for US dollars. When financial markets demand fewer non-US dollar assets, all those foreign exchange reserves go home to roost, increasing the odds that those international economies will experience renewed inflation threats.