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Who would have thought it would be emerging markets calling for a hike in September, when everyone thought they would prefer no.
And our beloved World Bank was issuing warnings to FED that a rate hike next week would destabilize emerging markets.
Is anyone being irrational or courageous or just conservative?
Think for a moment and you would realize, it is not any of that. As a matter of fact, it is perfectly reasonable for the EMs (emerging markets), as well as World Banks, with pinch of fear and sense of fed-up.
Have a look at these key points -
- Inflation is constantly below FED's target of 2% for past several years, so it is completely rational if some are calling for further wait and watch.
- It is also a bit rational to fear the rate hike from FED, if so much chaos (EM currency slide/Commodity rout) erupts over its anticipation, who can say what might unfold once the hike actually happens.
- It is also rational to hike rates before inflation closes in to 2%, in that way rate hike could be more gradual and FED can be in ready stance should inflation surprise to upside.
- EM's calling for rate hike is even more rational. Uncertainty regarding the timing of the hike is getting unbearable, it has started creating its own havoc now. Suspense is now thicker than Alfred Hitchcock's Psycho.
