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17/06/2022 - Economy

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June 17, 2022

The U.S. Federal Reserve’s interest rate hike has its spill over effect on India. Analyse. (200 words)

Refer - The Hindu

Enrich the answer from other sources, if the question demands.

3 comments
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IAS Parliament 2 months

KEY POINTS

·        The U.S. Federal Reserve  implemented its steepest interest rate increase in more than 27 years as it fights to rein in runaway inflation.

·        Fed recognised the ‘hardship high inflation was causing’ and had the resolve to restore price stability with singular focus.

·        Even as it realises that it has very little control over supply side factors, including Russia’s invasion of Ukraine and COVID-related lockdowns in China, the U.S. central bank said it was determined to continue raising interest rates till it saw ‘compelling evidence’ that inflation was slowing towards its 2% goal.

·        It is also a scenario mirrored earlier this month in forecasts by almost 70% of academic economists, polled by the Financial Times and the University of Chicago, who foresee the U.S. economy shrinking in 2023.

·        The Fed recognises that the tighter financial conditions have tempered demand, even as it posits that real GDP growth has rebounded on strong consumption spending.

·        Central bankers now see the U.S. economy expanding by 1.7% both in 2022 and 2023, slower than the March forecasts of 2.8% and 2.2%, respectively.

·        For India, the Fed’s actions are likely to result in an acceleration in the recent exodus of foreign portfolio investments, spur more gains for the dollar against the rupee thus widening the trade deficit.

Sathishkumar 2 months

Please give elaborate review

IAS Parliament 2 months

Try to explain the flow chart and use side headings to write good answer. Keep Writing.

Aravind R 2 months

Kindly review this mam/sir

IAS Parliament 2 months

Avoid striking out answer, try to include data to support your arguments and bring coherence in the answer. Keep Writing.

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