Skip to main content

Decoding the Fed’s signals(thehindu)

The U.S. Federal Reserve’s widely anticipated decision to  resume its course of normalisation of monetary policy by raising the benchmark Federal Funds rate by one-quarter of a percentage point has unequivocally signalled that the world’s largest economy is well and truly back on track. Fed Chair Janet Yellen has said the U.S. central bank now expects the economy to “continue to perform well”. The median projection of real gross domestic product growth among the Federal Open Market Committee’s participants is for the expansion to accelerate to 2.1 per cent in 2017, from 1.9 per cent this year. This bodes well for the world economy as an improvement in demand for goods and services in one of the biggest markets will potentially spur economic activity all over. That the improvement in momentum has been accompanied by “solid” job gains and moderate increases in household spending is particularly heartening since personal consumption undergirds overall demand in the U.S. The Fed has also stated that it expects future interest rate increases to be gradual. The median projection for the funds rate at the end of 2017 is estimated at 1.4 per cent, indicating at most another 3 to 4 quarter point moves over the next 12 months. Such a calibrated approach to policy normalisation will allow international markets time to reset investment weights and priorities, while ensuring that the domestic momentum doesn’t unravel. And with indications that Donald Trump’s administration may unveil policies to bolster domestic economic activity, the prospects for the U.S. economy appear sanguine as of now.
From an Indian perspective, however, there are attendant risks from the Fed’s policy normalisation. For one, the dollar’s strengthening trend against most major currencies and the rupee have begun to push up India’s bill for imports — a large share of which does not lend itself to substitution — and widen the trade deficit. Latest trade data show India’s import costs in rupee terms climbed 13 per cent in November while the value in dollar terms rose 10.4 per cent, in a clear reflection of the impact of the dollar’s appreciation. Also, the very same improvement in U.S. economic outlook that could lend a glint of anticipation to Indian exporters has already been a factor in spurring an exodus of portfolio investment capital from emerging markets, including India, and inflows back into the home market. And with the U.S. President-elect resorting to protectionist rhetoric, Indian companies, especially exporters of software services, are likely to remain on tenterhooks till clarity emerges on the administration’s policy road map. For the moment, all optimism stemming from the strengthening U.S. economy will need to be tempered with caution

Comments

Popular posts from this blog

SC asks Centre to strike a balance on Rohingya issue (.hindu)

Supreme Court orally indicates that the government should not deport Rohingya “now” as the Centre prevails over it to not record any such views in its formal order, citing “international ramifications”.

The Supreme Court on Friday came close to ordering the government not to deport the Rohingya.

It finally settled on merely observing that a balance should be struck between humanitarian concern for the community and the country's national security and economic interests.

The court was hearing a bunch of petitions, one filed by persons within the Rohingya community, against a proposed move to deport over 40,000 Rohingya refugees. A three-judge Bench, led by Chief Justice of India Dipak Misra, began by orally indicating that the government should not deport Rohingya “now”, but the government prevailed on the court to not pass any formal order, citing “international ramifications”. With this, the status quo continues even though the court gave the community liberty to approach it in …

Khar’s experimentation with Himalayan nettle brings recognition (downtoearth)

Nature never fails to surprise us. In many parts of the world, natural resources are the only source of livelihood opportunities available to people. They can be in the form of wild shrubs like Daphne papyracea and Daphne bholua (paper plant) that are used to make paper or Gossypium spp (cotton) that forms the backbone of the textile industry.

Nothing can compete with the dynamism of biological resources. Recently, Girardinia diversifolia (Himalayan nettle), a fibre-yielding plant, has become an important livelihood option for people living in the remote mountainous villages of the Hindu Kush Himalaya.

There is a community in Khar, a hamlet in Darchula district in far-western Nepal, which produces fabrics from Himalayan nettle. The fabric and the things made from it are sold in local as well as national and international markets as high-end products.

A Himalayan nettle value chain development initiative implemented by the Kailash Sacred Landscape Conservation and Development Initiati…

India’s criminal wastage: over 10 million works under MGNREGA incomplete or abandoned (hindu)

In the last three and half years, the rate of work completion under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) has drastically declined, leading to wastage of public money and leaving villages more prone to drought. This could also be a reason for people moving out of the programme.

At a time when more than one-third of India’s districts are reeling under a drought-like situation due to deficit rainfall, here comes another bad news. The works started under the MGNREGA—close to 80 per cent related to water conservation, irrigation and land development—are increasingly not being completed or in practice, abandoned.

Going by the data (as on October 12) in the Ministry of Rural Development’s website, which tracks progress of MGNREGA through a comprehensive MIS, 10.4 million works have not been completed since April 2014. In the last three and half years, 39.7 million works were started under the programme. Going by the stipulation under the programme, close to 7…