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Tuesday, March 11, 2014

The Quantitative Easing program was designed for many reasons; with a key one being to boost growth levels in the US. Given the declining GDP, the country needed to increase its overall output levels. However, the US seems to have now realized that the projected long term growth rates are not likely to be met, or touch full potential, and thereby need to be revised lower. As such, what should be expected? A quicker than expected tapering in money supply.

In an interesting article, Bloomberg discussed about the likelihood of the country's projected future potential output not being reached on the back of the severe impact of the recession that has hit the economy over the past few years. And as such, the Congressional Budget Office has had to revise the country's potential output targets downwards (for the year 2017, which was set in 2007). And with the same happening, the US would need to revise its unemployment targets - given the lower output would require lesser people in the workforce - and thereby reducing the need for QE all the more. If this was to come true, we could possibly see the hot capital moving out of emerging market nations such as India much faster than what has been anticipated.

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