Editorial Simplified | 17th March 2017

Editorial Simplified : 17th Day of March 2017

This Series of posts covers the essential Editorial from prominent newspapers. The Editorial from the newspapers are compiled by the Subject Teachers form the Academy and provided in notes format so that the aspirants does not waste their precious time in sifting through the newspapers. 

The Hindu

Editorial : Return to normal

Context

U.S. Federal Reserve has resumed normal monetary service by raising interest rates 

Important Points

  • This indicates that the Fed’s efforts to reflate the world’s largest economy are largely on track
  • The Fed said 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
  • The Fed said that the rate change is not a “pre-set course” and any changes in rate will also consider the implications from the fiscal policy of President Trump’s government.
  • Fed ended up holding a lot of Treasury bonds and mortgage-backed securities, in the aftermath of the 2008 financial crisis, and any plans to unwind these holdings in the market will also be “gradual and predictable” to avoid a repeat of the “taper tantrum” of 2013.

Analysis

  • The “gradual increase” provides a degree of policy predictability for the markets; “gradual” will be broadly two more rate increases of one quarter of a percentage point each for the rest of 2017 
  • An accelerated rate normalisation could have triggered a sharp jump in outflows from emerging markets such as India.
  • It is reassuring for investors globally that the world’s key economic engine is in good shape
  • This bodes well for India’s exporters, including software services, who are putting the business sentiment as “favourable”

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