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04/23/2005

What to do after providing liquidity

It is suerely a most difficult point. No fx intervention is expected. However, what about the potential and possible impact on some emerging economies? Major countries including China should seriously think about it and this could be the first possible occation where the regional as well as global cooperation is needed in concrete forms.

リンク: Angry Bear.

After the initial financial shock has been absorbed, then the next most important job of the Fed retakes center stage - ensuring that inflationary expectations do not change. Since there is little doubt that inflation would indeed jump in the wake of a revaluation, the Fed therefore will face the delicate task of switching, perhaps quite rapidly, from a position of ensuring liquidity to a position of dampening incipient inflation. This, it strikes me, will be the hardest part of managing the landing for the US economy.

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