Equity prices are already 10% off their recent highs. Friday’s brutal sell-off will add to investor jitters.
Global markets have not been in good shape this year, as the US inches closer to recession. India, too, has suffered. Whatever became of the decoupling thesis?
All eyes will be on US Federal Reserve chairman Ben Bernanke. He has earned his sobriquet—Helicopter Ben—because of an old remark. Bernanke said that during a financial crisis, central bankers should drop dollar bills from helicopters to spur spending in the economy.
Will Bernanke cut rates further to keep the US out of a recession? He is likely to. But sustained cuts will send the dollar into a free fall, as money flows to higher-yield currencies. It is significant that Bernanke has now backed the idea of a fiscal stimulus to complement a loose monetary policy.
Investors will be looking skywards—for the famed helicopter to come whirring.