Business / Inflation or recession what is current status of us economy how impact on indian detail here

Business | "Biden is in an imaginary world, he wants to name America's inflation "Putin inflation." Was trying to choose one from.

However, now the Fed Reserve has made it clear by raising interest rates by a record 0.75 percent that its first goal is to bring inflation under control. This is also because inflation in the US is at a 40-year high. Now it is also believed that the US economy is going towards a short-term recession. At the same time, some analysts say that the economy is just for the short term but the slowdown has come.

Meaning of recession: Actually, for several quarters, there is talk of recession due to the slowdown in the economy. The biggest measure of recession is the GDP growth rate. It is estimated that America's growth rate can go below 1 percent. This thing has got the wind from the estimates of the US Central Bank Fed Reserve. The Central Bank estimates that the GDP growth for 2022 will be 1.7 percent, which was earlier kept at 2.8 percent. The Fed's estimate is based on the current situation, but there is a possibility of further shrinkage.

How the increase in interest rate will lead to recession: Its simple formula is related to consumer spending. Central banks hike interest rates so that consumers show skimping on spending. Its purpose is to bridge the gap between demand and supply. The simple math of economics is that if the consumer has more money in his pocket, then he will spend more. Higher expenditure means that demand will increase in the market. To meet the demand, the supply has to increase. For this, imports will have to be made from outside countries.

Impact on Supply Chain: Currently, due to the war between Kovid and Russia-Ukraine, supply chains are affected worldwide including America. Due to Kovid, factories are still closed in China, so production is also not being done properly. At the same time, the supply chain of foreign countries seems to be breaking down in the Russia-Ukraine war. America is no exception to this. This means to say that the gap between demand and supply does not increase, so that interest rates are increased. If this gap widens, there will be a shortage of goods needed by the consumers. At the same time, inflation will also increase.

Meaning of recession: If America has chosen the path of recession only for the short term but it is not that easy either. Due to the slowdown, the growth of the economy will be sluggish. This can affect job data and increase unemployment. There will be stability in the salary of the people. However, the good thing is that unemployment in America is still not uncontrollable.

The impact on the market: The first effect of the recession in America is being seen in the stock markets of the country. Some indices of the US stock market have entered the bear market. This means that the index has come down by 20 percent or more from the highest level. Due to the deteriorating situation in America, most of the stock markets of Asia are also crawling. Talking about the Indian stock market, it is at a one-year low.

Why the effect on India's market: If the Fed Reserve has increased interest rates, then there is a setback for those foreign investors who invest in countries like India for strong returns by taking loans at low interest rates. Apart from this, foreign investors are withdrawing their money keeping in view the future volatility. Not only this, investors will also get an opportunity to earn more profits in their country by increasing interest rates.

Why worry for India: Rupee will weaken due to US slowdown. Its effect is visible. The rupee has fallen to its lowest level against the US dollar. It is estimated that soon the value of rupee will be 80 against 1 dollar. Meaning the price of one dollar will be 80 rupees or more in India.

What will happen if the rupee weakens: The country will have to spend more for imports than before. This will increase the import bill, it can be a big loss amid record crude oil prices. This will also weaken the foreign exchange reserves. Apart from this, companies will also pay more for imported goods. This will reduce their margins and to recover it, they will increase the price of the product, thus increasing inflation.