Now, the Fed has increased interest rate in real terms or inflation adjusted terms by 25 basis points... 2.25% feds fund rate and 2% inflation which might start really affecting the economy... most of the companies listed in the stock market are export oriented companies, however a strong dollar has shown exports contracting and imports swelling in the recent months, which have increased the possibility of further Trump strikes on imports increasing inflation and expectations and loss in the US' competitiveness, including higher capital cost, aggravating the problem of lower exports and more imports due to depreciation in the trading partners economy...
Depreciation and outflows and uncertainty in the EMs, due to the monetary policy in the US, could also affect growth in the US, which could increase the unemployment rate negatively in the days to come due to lower exports and higher imports...
A strong dollar is responsible of more imports to the US and uncertainty on the global front, which would further strengthen due to the tight monetary policy and a safe haven image....
A stronger dollar is one of the reasons of high imports and CAD in the US and in the EMs due to dollar denominated oil…
Trump policies are just badly timed when the economy is close to full employment…
At this point it is just fine to stabilize inflation, interest rate, dollar and expectations at full employment and increase productivity through investment in education, innovation and skills for which lower interest rate matters, too…
In INDIA… rising inflation and inflation expectations have given rise to higher interest rate and expectations that have put brakes on the still slow recovery from the past slowdown which could be attributed to high food prices and interest rate hike during UPA, but this time higher oil prices and interest rate and expectations are the causes of slowdown expectations in the Indian economy which has cut on the current cycle of economic expansion, the UPA was constrained by food and the NDA is now restricted by the oil…
Nonetheless, interest rate hike and expectations amid higher oil prices and dollar demand and depreciation have also resulted in NPAs and default by some companies and financial companies and stock market has been going through period of correction and uncertainty that has also led to capital outflows from the both, the debt market and the stock market also owing to interest rate hike and strong dollar and expectations in the US further leading to higher CAD and dollar demand, nonetheless lower fiscal deficit during NDA has kept inflation and depreciation under check than the UPA which is quite commendable…
Notwithstanding, oil prices and the resulting inflation and expectations have been the sole reasons for interest rate hike and expectations and short economic boom and upcycle in INDIA which could be saved if the government think of ways of reducing price or inflation and inflation expectations and increase rate cut and rate cut expectations… which could lengthen the economic expansion and growth and growth expectations which could also increase capital inflows and stop depreciation and increase rupee appreciation and expectations…
Since, oil prices are responsible for the ruckus in INDIA, the solution must concentrate on oil to reduce inflation and interest rate and expectations, and oil prices could come down only if we increase supply or reduce cost, also through lower borrowing cost, but higher dollar prices have further put pressure on the oil prices which has constricted supply and expectations and are major constraints on supply, however if we reduce oil cost and prices by increasing blending of bio fuels and fossil fuels as much as possible prices might come down , although the government is aware of the idea, but INDIA has a low base for bio fuels or raw materials, nevertheless it could increase imports of bio fuels and raw materials from other countries like US, Brazil and Germany, but it has recently imposed tariff of bio fuels which could further increase the price of oil…
Bio fuels are much cheaper than fossil fuels and could reduce demand of fossil fuels and dollar and could also help reduce cost and prices of oils.....
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