Skip to main content

Return to normal (Hindu)

By pointing to gradual rate increases, the Fed reassures markets and policymakers

The U.S. Federal Reserve has resumed normal monetary service by raising interest rates for the second time in three months. The Fed’s decision on Wednesday reflects its confidence in the continuing expansion and signals that its efforts to reflate the world’s largest economy are largely on track — with overall inflation seen to be stabilising around its longer-run target of 2% over the next couple of years. Significantly, Chair Janet Yellen stressed that policymakers expect the strengthening economy would warrant “gradual increases” in the benchmark federal funds rate to ensure that the monetary policy stance remains accommodative of growth, even as price stability is ensured. This emphasis on ‘gradual’ provides a degree of policy predictability that markets, for now, can broadly factor in two more rate increases of one quarter of a percentage point each for the rest of 2017 — especially when coupled with a median projection for the signalling rate to reach 1.4% at the end of the year, from the current 0.75%-1.0% range. The statement has allayed fears of an accelerated rate normalisation, that could have triggered a sharp jump in outflows from emerging markets such as India. Investors worldwide are bound to feel more reassured that one of the world’s key economic engines is in good shape and that should bode well for global demand. India’s exporters, including of software services, are also likely to see a silver lining in the Fed chief’s reference to a distinct firming in business investment, after having been soft in 2016, that has helped put business sentiment at “favourable levels”.

Ms. Yellen also flagged caveats to the Fed’s projections. Averring that policy is “not on a pre-set course”, she pointed to the potential impact that changes in fiscal policy, among other factors, could have on the economic outlook. While acknowledging that it is still too early to anticipate exactly how the Trump administration’s fiscal policies may unfold, the central bank is intimating that it will be closely monitoring the new dispensation’s broad budget plans and remains ready to change policy tack if it were to perceive any risks to its price stability goals. There is also the matter of when the Fed may decide to initiate the process of normalising its balance sheet. Given that the central bank’s holdings of Treasury bonds and mortgage-backed securities reached record levels in the aftermath of the 2008 financial crisis, any plan to begin unwinding these holdings will need to be very carefully calibrated and communicated in advance to ensure that global markets don’t witness a repeat of the ‘taper tantrum’ of 2013. Ms. Yellen stressed just that when she said the Fed “as a matter of prudent planning” had discussed issues related to an eventual change to its reinvestment policy and, while no decisions were taken, would ensure that the process be “gradual and predictable”.

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 …

Cloud seeding

Demonstrating the function of the flare rack that carries silver iodide for cloud-seeding through an aircraft. 
Water is essential for life on the earth. Precipitation from the skies is the only source for it. India and the rest of Asia are dependent on the monsoons for rains. While the South West Monsoon is the main source for India as a whole, Tamil Nadu and coastal areas of South Andhra Pradesh get the benefit of the North East Monsoon, which is just a less dependable beat on the reversal of the South West Monsoon winds.

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…