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By S Murlidharan Mar 25, 2023 10:21:52 AM IST (Published)
The US Fed Reserve seems to have realised that there are factors other than interest that need to be addressed to rein in inflation. Many of them of course are not within its remit but the looming presence of shadow banks in the US has not escaped its attention as indeed of the entire tribe of lawmakers in the US. Even though the truth is that they are widely prevalent in most countries including India and China as they are indeed a necessary evil given the fact that they step in to fill the vacuum left by the mainstream banking sector.
The quarter percent hike in interest rate announced by the Federal Reserve on 22nd March applies slight break on relentless and large doses of monthly increase in interest rates with a view to taming the monster of inflation, raging at 6 percent. While, the the Fed Reserve also seems to have realised that there are factors other than interest that need to be addressed to rein in inflation.
Inflation blues
The let up in the size of the hike in the last two consecutive months from the earlier 50 basis points to 25 basis points both in February and March this year is the result of a chastening realisation that no economic decision is free of side effects.
The recent collapse of Silicon Valley Bank (SVB) and Signature Bank has made the authorities go slow as their experiences as indeed the experiences of many others brought home the grim reality that as you hike interest rates, correspondingly and conversely bonds are denuded of their values given the time-tested inverse relationship between the two that in fact triggered to a substantial degree the collapse of SVB.