The US Fed on Tuesday, Jan 31, 2006 raised the interest rates by 25 basis points to 4.5 percent. This is highest ever since May 2001. It is widely believed that this hike will be the last in a series of 14 consecutive hikes. Coincidentally, this hike also brings Allan Greenspan’s term as the Chairman of the US Fed to an end.
No hikes in the future or a reduction in the interest rates would mean a softer dollar regime, which is also in line with the massive current account deficit that the US has.
For the consumer, while borrowing money may get cheaper or may stay stable under the new interest rate regime, a softer dollar will mean an increase in the cost of imported products and the US is the largest importer in the world! Not a very happy situation!
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