Xie’s article entitled "Tight Spot for Fed, Blind Spot for Investors" explains succinctly how the U.S. Federal Reserve is caught between a rock and a hard place, after committing to a US$12 trillion stimulus package to bail out the financial system. It is caught in a dilemma on whether to keep interest rates artificially low, which might further depress the already weak dollar caused by a steady outflow of smart money that is wary of the massive money supply overhang (the author thinks) and hence force inflation expectations even higher, or to hint a rate raise, which might stamp out any so-called green shoots in the still ailing economy.
U.S. Fed in the Hot Seat
Xie’s article entitled "Tight Spot for Fed, Blind Spot for Investors" explains succinctly how the U.S. Federal Reserve is caught between a rock and a hard place, after committing to a US$12 trillion stimulus package to bail out the financial system. It is caught in a dilemma on whether to keep interest rates artificially low, which might further depress the already weak dollar caused by a steady outflow of smart money that is wary of the massive money supply overhang (the author thinks) and hence force inflation expectations even higher, or to hint a rate raise, which might stamp out any so-called green shoots in the still ailing economy.
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