Just read this in The Edge Malaysia. I hate it when there are bad news for the US economy. Come on, grow and maintain the growth! Latest jobs data for September showed that the numbers are far short of expectations and with this comes the potential delay of an interest rate hike. Federal Reserve is unlikely to risk raising rates and putting a stop to the current fragile growth. I seriously hope every month, they would report very good numbers for the US economy and the rates are increased on schedule in the soonest possible time. Read here for my wish for the US economy: I also hope US economy will show great numbers Otherwise, lots more volatility and uncertainty for all the smaller economies which unfortunately includes Malaysia.
In brief, when economy is growing, the rates can be increased. This gives the central bank, in this case the Federal Reserve to have more flexibility to deal with any other shocks. Imagine if your interest rate is already zero. What else can you do when you want to simulate the economic growth? Nothing. Perhaps the government can continue to borrow ever more money and pump into the economy? Well, it may not work. Japan’s current government debt to GDP is already 230% as at Dec 2014. The country which defaulted recently, Greece is at 177% while US is at 102.8%. Oh yeah, our country Malaysia? It’s at 52.8%. Remember Zeti said that our rates are currently accommodative? Yeah, we can still use interest rate as a ‘weapon’ to help in GDP growth. Many countries could not because their rates are already zero or close to zero.
Last week, the Fed Chair Janet Yellen’s said that the US economy was strong enough to withstand a rate hike this year. Economists say that the United States should be put on a path of higher interest rates because this may give the Fed more ammunition to deal with any future recession. Interest rates should be too high but the current rates in US is only 0.25 percent. Now do you understand why everyone is so excited with the interest rate movement in US? The only way is UP. That’s why majority of everyone is definitely going to hold more US$. It’s considered safe since the rates in US has been mentioned countless times as “most likely” to go up since some time back. All the best US. Grow!
written on 2 Sept 2015
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