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International Issues/ Economy/ Foreign Affairs

U.S Federal Reserve takes a U-turn from earlier declaration !

bernanke-continues-stimulus

The Federal Reserve will continue its extraordinary efforts to prop up the nation’s recovery with billions of dollars in stimulus, officials said Wednesday, essentially declaring the economy too weak to stand on its own. Stock markets soared to record highs as investors welcomed the unexpected announcement of more stimulus. But the Fed’s message about the recovery was not so rosy, and officials again cut their forecasts for economic growth. (Excerpt from Washington Post article : ‘Fed lets stimulus continue to ride’ dt Sept 19, 2013)

This is what I said about 6 weeks ago, that US economy has not fully recovered as yet. After this Federal Reserve u-turn, with a marginal drop in the US dollar price index, Euro currency is likely to get stronger. Well, UK Pound sterling has already become stronger marginally. Treasuries and gold in the US rallied as the Federal Reserve unexpectedly refrained from reducing its monetary stimulus. Gold appears to be the right place to hedge funds across the world (including India) though that is an un-productive asset in real terms.

But, unfortunately or rather fortunately too – Indian Rupee has weakened against the US Dollar in the last 60 days or so, though it has climbed up to INR 62 per US dollar (from near to Rs 69 per US dollar earlier). I feel, this forex rate will still help in attracting more FDI interests into India. So as of now, the RBI Governor, Raghuram Rajan, should pro-actively control the inflation index in India and also make sure that the GDP growth percentage is stable. Then, India will continue to be an attractive destination for aiding world economic growth and for earning profits by FIIs.

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About Raman Ramamurthy

I am a Management consultant, an avid reader, play Lawn tennis in my leisure time and love Music. Presently, I am settled in India along with my wife and my son.

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