This projection -- which optimistically assumes no renewal of the global financial crisis -- means that the US unemployment rate is likely to remain far higher than the normal level at least until the end of 2016. Any reduction in unemployment will be the result more of discouraged workers leaving the work force than any actual upturn in economic activity.
Besides the need for the financial markets to get their monthly injection of fresh cash, there are other factors underlying the Fed decision. Of particular concern is the state of so-called emerging markets, the economies of countries such as India, Indonesia, Turkey, South Africa and Brazil, which received a sharp blow from Bernanke's hints of a letup in quantitative easing.
In anticipation that the phase-out of Fed purchases would lead to a tightening in US financial markets and a rise in US interest rates, globally mobile capital has begun to flow out of the emerging markets and back into the US. The result has been a sharp drop in the currencies of the affected countries, which has fueled inflation and worsened the position of companies and governments that borrowed in dollars or other foreign currencies and now find their debts more expensive to repay.
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