The US Federal Reserve’s announcement that it will inject another $600 billion into the US economy hasn’t gone down well with emerging economies. Several G20 economies, including Brazil, China, and Russia have criticized the decision, being referred to as Quantitative Easing 2 (QE2) saying that it will create an imbalance in the global economy.
According to The Globe and Mail, the move by the Fed is being seen as unfair because it is likely to weaken the dollar. This in turn will result in exports from other countries becoming less competitive, which is a major cause of worry for countries like Germany and China that largely depend on exports for economic growth. Another reason for discontent is that the move will increase the flow of money from the US to capital markets in emerging economies. Most of the emerging economies’ stock markets are already overheated and a further inflow of foreign funds is likely to create problems.
The decision by the Fed to increase money supply in the US economy has been taken to deal with high unemployment. The Fed is hoping that easier availability of money will encourage companies to invest in new projects. The move could also have an impact on interest rates. If you are looking to buy a house, ask your mortgage broker about what effect QE2 could have on your mortgage.
