US Fed meet and its effects on emerging markets: Current Affairs Special Series

Team Adda247 and BankersAdda are here with a Current Affairs Special Series. In this series, candidates will be introduced to current affairs topics daily, which will not only improve their general awareness but also will ensure that the candidates do not lack in any current affairs topic. Today’s Current Affairs topic is India is US Fed meet and its effects on emerging markets

US Fed meet and its effects on emerging markets

After the meeting of the US Federal Reserve (Fed) selling-off in equities after the Fed moved up its timeline for interest rate hikes, expecting two increases in 2023. US Fed has also raised its inflation forecast by a full percentage point to 3.4%.

A series of red-hot inflationary prints led by a sharp flare-up in prices of industrial and agricultural commodities, acute bottlenecks in supply chains, a surge in aggregate demands due to the opening up of economies especially in the developed world manifested in bubble-like conditions in parts of financial markets. 

The US Federal Reserve has kept the rates unchanged and continued with its monthly $120 billion bond-buying program without explicitly mentioning any timeline about tapering its aggressive bond-buying program unveiled during the depths of the economic downturn brought about by the Covid pandemic.

US market believes that the Fed appears to be increasingly beholden to the economic and fiscal agenda of the US Administration that has proposed to spend $2.3 trillion on the infrastructure development plan and $1.8 trillion of Family plan after being successful in passing a $1.9 trillion Coronavirus relief package to support business and consumers. 

Central Bankers including the Fed fear that any disruptive rise in yields will compromise their respective government’s insatiable appetite to borrow at even lower rates. Various Central Banks and governments had announced multi-trillion-dollar monetary and fiscal stimulus measures for reviving the real economy of their country. 

However, with debt to GDP ratios soaring in many countries this benign neglect at best or dangerous comfort at worst is bound to come back to haunt today’s merrymaking fiscal and monetary profligates.

After the Fed meeting the US dollar got strengthening due to stronger economic growth and earlier than expected increase in rates.