After the bloodbath in the US stock markets three weeks back, it became clear that the US economy is not in good condition. US Federal Reserve Chairman Jerome Powell quickly took a corrective measure by indicating that he would convene an emergency meeting of the central bank. He also stated a cut in the interest rates. Though the stock markets recovered after three days of the bear hug, the concerns of the US economy were not alleviated. Economists and experts have clear doubts if the step, if any, taken by the Fed will be able to stop the economy from going slow or even slipping into a recession.
Bloodbath In Stock Market
Despite enough of hullabaloo, Powell has not yet convened the meeting of the Fed Reserve. Earlier the central bank was scheduled to hold the meeting to decide the rate cut in September, but after the crash of the stock markets, people expected that the meeting would be held before that so that the economy is given a boost before it is too late.
September Meeting Of Federal Reserve
The Fed Reserve has yet to hold the meeting. The meeting of the Federal Open Market Committee is slated to be held on September 17-18. After Powell said that “the time has come” for a monetary policy adjustment”, the market and other people related to the issue are waiting with bated breath.
How Much Cut-In Interest Rates?
But more importantly, people are interested to know how many cuts would be announced. The current interest rate of 5% is not considered conducive to giving a fillip to the economy. Experts believe the Fed may announce a cut of about 50 basis points in September and another 50 basis points in December.
Will Rate Cut Boost Economy Now?
Will it be enough to stop the US economy from slipping into a recession? Experts believe the bank interest rates good enough to push the US economy up should be between 3% and 3.5% and it should be achieved within one year. Even if the Federal Reserve slashes the rates by 50 basis points in September, it will certainly give a shot in the arm, but it would not kick-start the economy on the road to further growth.
High Unemployment Rate
The employment data released in June made it clear that the unemployment rate has reached the historic level of 5%, which is unacceptable. Experts also believe that the rate of inflation too should be around 3-4%. Though the run of inflation has come to a halt, it is expected to go up with a cut in the interest rates.
Will the New President Change Economic Policies
Democrat candidate Kamala Harris has indicated economic policies that may not offer fresh cuts in corporate rates or further incentives. Unlike her rival Republican candidate Donald Trump, she has not raked up anti-China rhetoric. Trump himself has not raked up the issues of ‘America First’ or ‘Make America Great Again’ beyond a limit. It appears that neither of the candidates would impose tariffs on imports beyond a limit. It can be said safely that the economy would not be derailed or pick up enemies in foreign trade.
Indo-US Trade Relations
India enjoys a trade surplus of $3.78 billion with the US. It exported goods and services worth $7.55 billion while it imported $3.78 billion. The US has been highly uncomfortable with India on the balance of trade issue. Then US President Donald Trump threatened India of slapping with punitive additional tariffs when he visited India in February 2020.
After Joe Biden took over, the Indo-US trade relations improved and the old bonhomie returned. Any slowdown in the US economy may further complicate the already frayed ties between the two countries.
Will Indian IT Sector Suffer?
If the US economy slips into a recession, India will get fewer IT-related and ITES orders. According to ‘statista.com’, IT exports reached $193 billion in 2023-24, the IT IT-related services and software contributed $126 billion. Most of these exports have gone to the US. If the US economy slips into a recession, India will be hit hard.
Other Sectors Too May Suffer
Steel and aluminum are the sectors, where India already faces stiff competition with China, and textile and garment sectors are dominated by exports from Bangladesh. Engineering and electronic goods that count for $11.46 billion and electronic goods that make up $5.8 billion exports to the US may also suffer.
Engineering and electronic goods that count for $11.46 billion and electronic goods that make up $5.8 billion exports to the US may also suffer. Gems and jewelry exports of $6.96 billion may suffer as the Indian gems sector is already under pressure and losing competition to artificial diamonds.
