Fed's signals (A global slowdown is arriving)

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 Fed's signals (A global slowdown is arriving)

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• A dovish Federal Reserve : Since the Fed has turned dovish, it is clear that the days of monetary policy normalisation are now over. That means the Fed won't raise rates to normal levels (as before 2007 financial crisis, that precipitated an expansionary monetary policy). [ CONCEPT : EXPANSIONARY AND CONTRACTIONARY POLICIES ]
• Cutting rates further : The Fed chairman Jerome Powell is open to cutting rates further, to tackle the various threats to the US economy. That is the clearest signal of an upcoming global slowdown. The biggest threat is from trade uncertainties (Trump's trade war). Recently, the boss of European Central Bank (ECB) Mario Draghi too hinted at rate cuts, and bond purchases, if inflation did not rise. [ Why? ]
• G-20 June 2019 : The outcome of the Xi-Trump talks could determine many policy issues.
• Fed's policy normalisation 2015 : As the US Fed started raising rates, the emerging market currencies were hit hard, due to FPI outflows. All that is gone now, as the West struggles with growth.
• Slowdown coming : The net learning is that a global slowdown is arriving, primarily due to trade tensions between the US and China. And we also see that the Fed is under pressure from a vocally critical President Trump. 
• What if they do cut rates : Even if the Central Banks cut rates, will it be enough, given the trade war running? Real interest rates in advanced economies are just above zero, so the room to cut is also very little. So other unconventional methods are needed, but as debt levels are now very high, that too is tough to do.
• RBI : If everyone cuts rates, the RBI too can do so, without worrying about the impact on rupee. But that may not boost economic growth, and instead of monetary, we may have to now focus on the fiscal.
• Summary : The limits of monetary support for economic growth have been reached, and deep structural reforms alone may push economic growth from here on.

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