Posted at 12:13 PM , on March 12, 2020
Emergency rate cuts are nothing new for the US Fed. They did it three times in 2001 and another three times during the Lehmann crisis. After a gap of nearly 12 years, Fed again cut rates by 50 bps on Tuesday, March 03, 2020.
The aftermath of the virus
Clearly, the US Fed was worried by the rapid spread of the virus pandemic and also the impact it was already beginning to have on the US economy. Large swathes of the Chinese economy had been virtually shut down impacting the global supply and demand chain. From falling demand for cars and luxury goods to disruption in the supply chain of raw materials; all was happening at a rapid pace. It is to arrest this trend that the Fed opted to cut rates by 50 basis points. This was done at a time when there was a fortnight to the Fed policy.
Posted at 6:17 PM , on February 2, 2016
Will they call a halt to rate hikes in March?
The US FOMC meet that concluded on January 27th was significant in more ways than one. The FOMC meet clearly acknowledged that the global situation was indicative of an overall slowdown and hence may not be conducive to rate hikes. The FOMC also conceded that the US economy may not be growing as robustly as it seemed to grow in 2015 and that may be another tacit admission by the committee. But most importantly, the minutes also focused on the need to adopt a wait-and-watch approach to rates in the current circumstances. Why is this critical? Continue reading
Posted at 6:49 PM , on September 24, 2015
It almost appears like a fait accompli. The US Fed has maintained status quo on rates in September and hence the door is open for Dr. Rajan to cut rates in his September 29 review of monetary policy. Actually, it may not be as simple as that. A rate cut will not be as simple as it appears to be. From a practical standpoint, the RBI governor will be weighed down by a plethora of variables before he decides on a rate cut on September 29. These variables will impact not only the rate cut decision but also the extent of rate cut that the RBI will undertake in the forthcoming policy meet.
Posted at 6:21 PM , on July 20, 2015
The Fed rate hike now looks closer and surer than originally anticipated. Janet Yellen had identified 3 critical factors which could impact the decision to hike rates. She called for a pick-up in GDP growth, fall in unemployment to 5% and inflation above 2%. The GDP has surely shown signs of picking up in the US. The rate of unemployment has been falling consistently since 2009 and is now close to 5%. Inflation is still below 2% due to the effect of cheap oil, but that may not be a sustainable rate. If the recent statements of Janet Yellen are to be taken at face value, then a rate hike may actually come as early as September this year. Continue reading