Seems counterintuitive to only search locally while in the Fediverse?

Is it the same on your instances?

It's default in Lemmy.

Many Lemmy instances have their own focus, themes, vibe, knowledge, culture, and more. Searching exclusively within local is useful for that. If you want broad federation, then Lemmy.world is ironically worse than instances like Lemmy.ml, because Lemmy.world blocks leftist instances like Hexbear.net and Lemmygrad.ml. Lemmy.world is basically Reddit but FOSS, with all the good and bad that comes with that, while other instances are genuinely unique and interesting by themselves. Federation is just a bonus that adds variety and more engagement.

You can change this in your user settings
See the "Type" buttons, I have mine set to local because I use a different account to interact with non-lemmy.ml instances:

Why would you want to see that zionazi lib hole 😁

Thanks, but this setting does not seem to be for that, I already have it on "All"

You're right on other instances the list of communities is "local" by default always apparently. I think it's just coded that way. I somehow completely missed that you were talking about the list of communities and not just posts, thats my bad.