While this approach may work if the knock-on effects are "linear" — translating a little overtightening by the Fed to a small overshoot on unemployment — he noted the risk of a cliff edge effect in labor markets.
"If people are not firing workers because they see it is very hard to hire workers — nobody's firing, it's very hard to hire workers, let me keep on my workers — once you see enough slack build up in the labor market, you say 'it's easy to find workers, let me fire the ones I had in a hurry,' and then you get a mass layoff effect," Rajan explained. "Is it linear or is it non-linear? We don't know."to 6.23% last week. They stood in a 6.
"Nobody's selling, therefore the little demand is met by little supply. What's [it] going to take [for] people to sell? Right now, they're not selling because they can't buy," Rajan said. "I have a 3% mortgage, I can't afford a house at 7% so I'm not going to sell because I can't buy.
Rajan stressed that the labor and housing market cliff edge is the "dire scenario" and that the most likely outcome was a slight U.S. recession. He refused to rule out a soft landing, which avoids two consecutive quarters of negative growth.
Its not really the central bank, but a government body under whose guidelines all financial institutions work. They are responsible for all the policy decisions and on a personal not had protected indian fin corps a lot especially through 2000-01, 2008 and current scenario.