US Economy Stalled, Will Renminbi Replaced US Dollar?

US economy lately seemed strong, having recorded consistently falling unemployment and rising inflation, but Kocherlakota and Stiglitz disagreed.

Fundamental economy of the US lately seemed strong, having recorded consistently falling unemployment and rising inflation. However, the Fed FOMC Meeting steadfastly ignoring quoestions on when the Fed rate hike will be scheduled. Why? The first reason could be that the Fed choose to promote macroprudential approaches in order to calm the market. While the second reason could be due to the weakness of US economy despite of the data. Two economists have spoken about their doubt over US economy recovery. One of them, Nobel-winner Joseph Stiglitz even insinuated that USD might be set aside by China Renminbi.

Fed Kocherlakota: Temporary Recovery

Narayana Kocherlakota, one of the Fed FOMC dovish member, provided a negative outlook on the positive US data. In Tuesday, he suggested that the pace of unemployment reduction might not be able to be sustained. Quoted by CNBC, he expects unemployment will fall just below 6 percent by year end.

As well, Kocherlakota called the increasingly strong inflation as temporary. He expects core inflation to stay around 1.6%. For the time being, core inflation have consistently rising. In February, core inflation was recorded at 1.57%, with 1.66% in April, 1.83% in May, and the latest data from June noted as 1.96%. If Kocherlakota prediction is right, then the market needs to anticipate the possibility of a drop in core inflation data within the next few months.

Kocherlakota is not the only one with such a pessimistic view. Nobel winner Joseph Stiglitz too, similarly dissilusioned.

Stiglitz: Strong Stocks, Weak Economy

In an interview reported by CNBC, Stiglitz said that the high level currently enjoyed by the stock market does not indicate a strong US economy recovery. The reason why stocks rose, he said, is because of low rate, low wages, and the fast growth of emerging markets. Many US multinational companies harvests big profits from the emerging markets, thus the stronger stock market does not really mean good US economy.

Stiglitz also referred to the patchy US economy recovery, Remember, labor force participation is at very, very low levels, much lower than before the crisis. Real wage increases have been very weak, well below what they should be if we were having a robust recovery. The resurgence of public consumption too, is toast, dua to the growing inequality in the US.

That's why, Stiglitz marked the Fed right for taking a careful approach on rate hike, It is, I believe, clearly premature to raise interest rates. They're going to wait and see exactly how this plays out. If it turns out that month after month we get 300,000 or so (new) jobs, then I think there will be evidence that there's a real recovery.

US Dollar Out, China Renminbi In

In the same interview, Stiglitz also talked about US Dollar The Currency. Stiglitz thinks that the role of the US Dollar in international trade transactions will dwindle down along with time. The use of China Renminbi, in turn, will increase over time, just as the US Dollar ruled out the UK Sterling.

Renminbi is the name of the People's Republic of China's currency. Its currency unit is Yuan, which makes the currency also known as simply Yuan or its symbols CNY  and CNH. The currency has widely talked about as the next big thing in the forex market along with China ever-growing influence on the world's economy.

The Renminbi's exchange rate previously fixed by the People's Bank Of China (PBOC), but the government nowadays has been industrious in smoothing the way to float the currency. Weaknesses in US economy could be one of the gaps where the China Renminbi could climb in  to take over as the international trade currency. Certainly, it is not impossible for the currency to get in the list of major currencies in the next few years.