Central banks across globe have been complimented for their great job during pandemic , which to a extent helped to contain its negative impacts on economy .
Pandemic has impacted supply chain management of goods and services , further lockdown and labor shortage was witnessed at wide range of industries ,hospitability and outdoor eating , entertainment saw their worst performance in decades.
Central bank resorted to quantitative easing and pursued ultra loose monetary policies and interest rates in developed countries sank to zero , they resorted to taper tantrum and started buying huge amount of government bonds and other assets in order to flush the economy with cash ,the Fed began reducing its monthly asset purchase program of $ 120 billion by $ 15 billion from November 2021 and enhanced it to $ 30 billion from January 2022 and Fed on its track to end asset purchases by 2022 in response to rising inflation , due to these assets purchase program Fed balance sheet increased to over $ 8.7 trillion , more than double the amount compared with early 2020 .
From restaurant meals to apartment , consumer prices have been climbing at the fastest pace in 40 years @ 7.5 % , the largest increase since 1982.
The share markets around world has turned extremely volatile with ending quantitative easing and rising inflation , Fed is eyeing steep rise in interest rates and consensus floating in market is about extremely hawkish policies . Developing economies like Indian suffer more , as foreign Financial Institutions starts selling equities as interest rates rises in USA and ending of easy money , in INDIA foreign financial institutions are constantly selling huge amount of Indian equities for many months but FII selling does not impacted Indian equities so far far due to higher retail participation and record opening of Demat accounts , but this fantasy is not to stay , quite visible now and gullible new entrant may suffer losses.
Yet economy has changed lot from earlier , and now policy makers and market gurus are all confused to a extent , many and what logically appears in changed economic sphere is about transitory inflation, analyst are equally divided , therefore central banks has tough task ahead as being too hawkish may ruin growth and job creation and rapidly changing monetary/economic policies may create confusion, uncertainty and harming economies and common man , further a worry some trend spotted in developed world is about short term interest yield being higher than long term interest yield which is strange and fraught with consequences.
Leave a Reply