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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