Friday, February 1, 2008

Who cares for the dollar? Not the Fed, surely!

Central bankers, economists and analysts are an anxious lot. As stock markets across continents are inexorably linked to the US Fed, they realise that the move to cut interest rates has far reaching implications. They know for sure that to save the United States' financial sector as a whole from complete collapse, the Fed has taken a huge gamble, especially on the dollar.

This could, in turn, have a debilitating impact on the US financial sector, American economy and by extension on the global economy, as talked about in the previous part of this column.

But as global markets debate the rate cut move, the US Fed -- the author of the move itself -- goes virtually un-scrutinised and unquestioned, in and outside the US. Crucially, the approach of the Fed to savings, investments, stock markets and the symbiotic link provided to all these is central to understanding its motives and what drives its decisions.

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