Early to think about US interest rates...

Rajan is right when he says cheap money offers easy risk-taking and ultra low interest rates in the US may also have led to risky investments which might even become riskier with rising interest rates… The US economy is going through depressed demand which makes the investments even more riskier because there is less demand for goods and services, and profits are expected to increase with an unexpected lag… The low level of employment in the employment intensive real-estate sector after the sub-prime-crisis left the economy with low demand and there is an excess of supply due to low interest rates before the recession… In the US almost all recessions coincide with oil-prices which is a right signal of demand in the economy and not just the unemployment rate… I think the Fed should take into account the oil-prices to decide for increase in interest rates… The economy is operating well below its capacity… People are accumulating reserves in the liquidity-trap because they are expecting prices to go down because, again, the Fed is now withdrawing from loose monetary policy and deflation is on the horizon, and if the Fed does not want prices and profits to go down it should continue with low interest rates even after the end of quantitative easing… I think, therefore, Rajan’s fear about too soon higher interest rates is too early… Janet Yellen, the Fed’s Chairwomen, is generally labeled as a dove and she would make sure that the recovery is full and also because voluntary unemployment has increased… I would tell her to take a gauge of oil-prices to decide for the first rate hike… Why the Fed wants to increase rates when there no demand and price pressure reflected in any of the country’s sectors… This question is unanswered “why the Fed wants to increase interest rates?” Even if the Fed increase rates, then the Indian Central bank should increases should increase domestic rates with an equal amount to keep the situation intact or it can also cut-back on the domestic rates to increase liquidity to the domestic market which will substitute foreign investment and will also restrict the stock-prices from going down too much…  Rajan is right when he says “policy-actions involve trade-offs”. A little higher domestic interest-rate looks consistent with high inflation and depreciation… Rajan still has some-time to decide…