Posted at 5:39 PM , on May 5, 2015
No rate hikes for the time being…
If there was one straight message from the Fed commentary, it was that there will be no rate hike in June 2015. If there was one hidden message from the commentary, it was that rates may not be hiked in 2015. What has led to this situation and what does it mean for global markets, especially India.
The US growth riddle…
US growth has been the biggest disappointment. A paltry growth of 0.2% in the first quarter is way below the growth achieved in the December quarter. Of course, generally the first quarter has been slow for the US. Additionally, this year the US had a problem of a very harsh winter. But experts are already beginning to ask whether this 0.2% in the first quarter is an exception? Or this is indicative of a deeper problem of huge debt and slow jobs growth in the US. Continue reading
Posted at 12:53 PM , on March 23, 2015
Tighten we will, but not as much as you fear!
There was a lot of furor about the Fed dropping the word “Patience” from its post FOMC meet discussions and statements. It is already worrying analysts that dropping the word “Patience” may signal rapid tightening of rates. That is not necessarily the case.
Unemployment is the key…
One of the key metrics that the Fed will look at is the rate of unemployment. That currently stands at 5-5.2%, down from around 5.7% last year. The Fed will be comfortable raising rates after unemployment comes down much further. Fed feels that raising rates when there is still a job slack in the economy may not be a great idea. While the employment data may be on track, the Fed will still prefer to bide its time. Continue reading
Posted at 10:40 AM , on March 19, 2015
The announcement made by US Federal Reserve Chair, Janet Yellen, on Wednesday was unambiguous to say the least. The word “Patience” has been dropped from the Fed statement which implies that the Fed may not wait much longer to raise interest rates in the US. The Fed surely has genuine reasons for the same. US labour data has been extremely strong and the US economy has grown at 2.2% in the December quarter after another robust 5.5% growth in the previous quarter. Of course, the Fed has a target of 2% inflation for rate hikes, which is likely to happen only if oil prices stop their free fall. But it looks like the month of June 2015 may see the first rate hike from the US Fed. Interestingly, if it happens, it will be the first rate hike by the Fed since 2006 (after a gap of a full 9 years). But firstly, why should India and other emerging markets be so worried about rising rates in the US? Continue reading