As the opposition spoke about the impact caused by fiscal policies of several govt during the time of

covid and its impact on inflation, we must also consider the series of expansionary monetary policies
that was taken by Fed during this period to provide support to the dipping US economy by providing
the money supply. These policies were:

a. Federal funds rate - The Fed cut its target for the federal funds rate, by a total of 1.5
percentage points at its meetings on March 3 and March 15, 2020. These cuts lowered the
funds rate to a range of 0% to 0.25%. This is a benchmark for other short-term rates, and also
affects longer-term rates, so this move was aimed at supporting spending by lowering the
cost of borrowing for households and businesses.
b. Forward guidance - The Fed offered forward guidance on the future path of interest rates.
Initially, it kept rates near zero “until it is confident that the economy has weathered recent
events and is on track to achieve its maximum employment and price stability goals.” In
September 2020, reflecting the Fed’s new monetary policy framework, it strengthened that
guidance, saying that rates would remain low “until labor market conditions have reached
levels consistent with the Committee’s assessments of maximum employment and inflation
has risen to 2% and is on track to moderately exceed 2% for some time.” -> Consequence of
this -> Main point here Fed told it will increase rates once inflation crosses target threshold
of 2% but still kept maintaining low rates(almost 0) till Feb of 2022 when inflation was
touching around 7%
c. Quantitative Easing – In this process, the Federal Reserve began increasing its balance sheet
by buying large quantities of Treasury debt and mortgage-linked securities. When the Fed
grows its balance sheet, it essentially ends up printing money — albeit digitally. The financial
system thus becomes awash with more liquidity, hopefully spurring greater lending among
financial firms. This was a key tool employed during the Great Recession. On March 15, 2020,
the Fed shifted the objective of QE to supporting the economy. It said that it would buy at
least $500 billion in Treasury securities and $200 billion in government-guaranteed
mortgage-backed securities.” In June 2020, the Fed set its rate of purchases to at least $80
billion a month in Treasuries and $40 billion in residential and commercial mortgage-backed
securities until further notice. The Fed updated its guidance in December 2020 to indicate it
would slow these purchases once the economy had made “substantial further progress”
toward the Fed’s goals of maximum employment and price stability. It began tapering pace
of asset purchases in Nov 2021 & doubled the speed of tampering in Dec 2021.
The Key highlight of these measures were although it was meant to revive the dipping
economy hit by covid 19 pandemic, the Fed lagged to apply the policy tightening measures
in time, since inflation had already started to kick in from Mid of 2021, started increasing
repo rates only in June 2022
d. According to experts the delay in the monetary policies tightening and continuation of
extensive fiscal and monetary, the inflation spiked up significantly from mid of 2021.
e. In contrast to the Fed, The RBI's decision reflected India's economic circumstances, where
maintaining a positive repo rate of 4% was seen as a balance between stimulating growth
and controlling inflationary pressures.

Post June 2022, the Fed has been continually increasing the interest rates to keep the rising inflation
in control. While that is intended to control inflation in the US market, this approach has some
indirect effects on other countries. With increased rates, the value of the dollar appreciates, and It
not only increases the cost of borrowing dollars; it also encourages investors to park their money
back in the United States, draining poorer countries of investment. That, in turn, tends to boost the
value of the dollar relative to other currencies, making it harder for poorer countries to pay back
their U.S.-dollar-denominated debt.

A rising dollar is causing pain overseas in several ways:

1. It makes other countries’ imports more expensive, adding to existing inflationary pressures.
2. It squeezes companies, consumers and governments that borrowed in dollars. That’s because
more local currency is needed to convert into dollars when making loan payments.
3. It forces central banks in other countries to raise interest rates to try and prop up their
currencies and keep money from fleeing their borders. But those higher rates also weaken
economic growth and drive up unemployment.

Consequently, Emerging economies with big dollar-denominated debt balances have been
particularly hard hit. Example -> Argentina put a ban on 31 imports that it deemed nonessential,
including yachts and whiskey. Because of the fall of Nigeria’s local currency, the naira, food prices
have driven inflation in Africa’s largest economy to nearly 20% in 2022, and After defaulting on its
foreign debt in May, Sri Lanka’s repayment costs continue to soar.

Another example of this was the effect on the Philippine peso, which weakened against the US dollar
to a new all-time low amid the strengthening of the US dollar due to the hawkish stance of the
Federal Reserve to tame inflation. The philippine Peso dropped to a historic low of P57 against the
US dollar in 2022. Authorities weighed in that “Strong dollar versus the peso has an impact on the
items in the consumer price index and that imported commodities such as petroleum, which are
bought using dollars, could impact local pump prices and, therefore, affect inflation.

since the start of 2022, the peso depreciated against the US dollar by nearly 12%. “which meant the
costs/prices of imported oil, other commodities, and other products already became more expensive
by nearly 12% since the start of 2022, assuming all other factors are the same, already much higher
or more than double the average inflation of 4.9% from January-August 2022.

These examples substantiate the fact that decisions taken by Fed in the last 5 years have not only
caused inflation volatility in the US market but also in several other parts of the world.