Biden is in a fictional world, he wants to call inflation in America ‘Putin’s inflation’. When the Russian government gave this response, the US central bank, the Federal Reserve, was struggling to choose between inflation or recession.
However, the Fed has now made it clear by raising interest rates by a record 0.75 percent that its number one goal is to control inflation. This is also because US inflation is at its highest level in 40 years. It is now also believed that the US economy is heading into a short-term recession. At the same time, some analysts say the economy is only short-term but the slowdown has come.
The meaning of stagnation In fact, for several quarters, there is talk of a recession due to the slowdown in the economy. The biggest measure of a recession is the rate of GDP growth. It is estimated that the growth rate in America could be less than 1 per cent. This thing has gotten wind of the Federal Reserve’s estimates of the US central bank. The central bank estimates that GDP growth for 2022 will be 1.7 percent, which was earlier kept at 2.8 percent. The Fed’s estimate depends on the current situation, but there is the potential for further deflation.
How high interest rates will lead to a recession: Its simple formula relates to consumer spending. Central banks raise interest rates so that consumers don’t spend on spending. Its purpose is to bridge the gap between supply and demand. The simple math in economics is that if a consumer has more money in his pocket, he will spend more. Higher spending means more demand in the market. To meet demand, supply must be increased. For this, imports must be made from external countries.
Impact on the supply chain: Currently, due to the war between Covid, Russia and Ukraine, the supply chains all over the world including America are affected. Because of Kovid, factories are still closed in China, so production isn’t going right either. At the same time, the supply chain for foreign countries appears to be disrupted in the Russo-Ukrainian war. America is no exception to this. This means that the gap between supply and demand does not increase, so that interest rates are increased. If this gap widens, there will be a shortage of goods that consumers need. At the same time, inflation will also increase.
The meaning of stagnation America has chosen the right path in the short term, but it is not so easy. Because of the slowdown, the growth of the economy will be slow. This could affect job data and increase unemployment. There will be stability in people’s salaries. However, the good thing is that unemployment in America is still uncontrollable.
read this- The Federal Reserve raised interest rates by 0.75 percent, the largest increase in 28 years
Market Voice: The first effect of the recession in America is visible in the stock markets of the country. Some US stock market indices entered the bear market. This means that the index has fallen 20 percent or more from its highest level. Most of the stock markets in Asia are crawling due to the deteriorating situation in America. Speaking of the Indian stock market, it has reached its lowest level in one year.
Why the impact on the Indian market: If the Fed raises interest rates, there is a setback for those foreign investors who invest in countries like India to get strong returns by taking loans at low interest rates. Apart from this, foreign investors withdraw their money keeping in mind the future volatility. Not only this, the investors will also get a chance to earn more profits in their country by increasing the interest rates.
read this-A whirlwind of America, fear of recession, a bigger crisis than Lehman Brothers?
Why worry about India: The rupee will weaken due to the economic recession in the US. Its effect is visible. The rupee fell to its lowest level against the US dollar. It is estimated that the rupee will soon be worth 80 for one dollar. Meaning that the price of one dollar will be 80 rupees or more in India.
read this-Stock market hit 52-week low on fear, sank Rs 5 crore, when will this decline stop?
What will happen if the rupee weakens? The country will have to spend on imports more than before. This will increase the import bill, and it can be a huge loss amid record crude oil prices. This will also weaken foreign exchange reserves. Apart from this, companies will also pay more for imported goods. This will reduce their margins and redeem them, they will increase the price of the product, thus increasing inflation.