Feds and its Fibs II

This blog is a continuation from Feds and its Fibs I.

Inflation is weakening of the value or ability of money to purchase goods & services. If I used to buy a kilo of apples for Rs. 100 some years back but I can buy only 750 gms today for the same Rs. 100, that implies there has been inflation. So, if there is severe inflation in the US as I have referenced in the previous part, it is but natural to wonder why has the US$ appreciated against most world currencies unlike what happened with Argentina or Venezuela or Zimbabwe or Sri Lanka when these countries started facing high inflation vs their respective historic averages. For instance, vs. the INR, US$ rate has moved from 72.99 to 79.71 in the past one year (it had briefly crossed the 80-mark as well) and vs. the EUR, it has moved from 0.84 to a parity of 1. (I have deliberately ignored CNY because of the managed floating system China follows where the CNY is pegged to the US$ based on the People's Bank of China's reference rate). This economic principle defying behaviour is the greatest shield the US$ and the USA has had over past so many decades.

Feds and its Fibs I

The US Federal Reserve (The Fed) conducts its annual economic symposium in the Jackson Hole mountain valley and the event is keenly watched by economists and financial experts around the globe for it has now come to witness presentation on major US monetary policy decisions and commentary on the road ahead for the world's largest economy. The event's highlight is the Fed Chair's speech and this year's roughly 8 minute readout by Fed Chair Jerome Powell was truly representative of the classic deer in the headlights moment. The Fed's commentary continues to confirm critical implications for the global economy in the wake of the COVID pandemic and hit by high inflation. Empty vessels clang the most, it is said. The fact that that the Fed has been talking a lot and acting little personifies the idiom. To delve into this, I shall be publishing a two-part blog. In the first, I intend to explore the genesis of the US' inflation problem and present circumstantial & tangible evidence on the Fed's cognitive dissonance while creating this problem. In the second, I wish to put forth the argument on why is it now going to be quite different than what it used to be in the past and what may Bhaarat look forward & adapt to.