FT.com / World / US & Canada – US economy in ‘uncharted waters’

Mr Kohn’s remarks suggest that top officials are not in a hurry to raise rates, largely because of uncertainty as to how much damage has been caused by the financial turmoil of recent months. “We are in uncharted waters when the financial system becomes so disrupted.”

Volatility is cheap. America is very sensitive right now to inflation worries, flows of new capital infusion, and energy prices. There are two primary emotional drivers: those who are scared about our economic sovereignty going out the door because of exponential increases in reliance on international financing and investment, and those who believe that our political and economic resilience will be able to navigate  ourselves out of this uncertainty. I wouldn’t bet directionally on either, but rather on volatility increasing in the next few months- especially if the aforementioned factors do not cool down. If the VIX was over 30 at the credit crunch, the global ‘energy crunch’ will most likely have a similar effect.

Additional Reading:

Dumb as We Wanna Be – New York Times