David Fernandez, MD and Head of Emerging Asia Research at JP Morgan, shares his views the US economy and the next stance the Fed is likely to take.

He also discusses the growth story in Europe and the emergence of the Euro in the current global scenario. He touches upon the Indo-US nuclear deal and gives his perspective of how it is likely to affect business in India and the rest of the world.

Excerpts from CNBC's exclusive interview with David Fernandez:

Q: As we near the holiday season, what is the shape of the US economy in your view and what does it say about what the Fed is likely to do next?

A: According to the Michigan survey, Americans at this point still do think that they have a lot to be thankful for in this thanksgiving and the numbers are holding up pretty well.

The consumer spending, looking at retail sales numbers from last week, indicate that after this slow down that we had in the late part of the summer, we actually had real consumer spending accelerate in the past couple of months.

There is reason to believe, looking at the Michigan survey and the fact that gas prices are still much lower than they were earlier in the year and the equity prices are up, that consumer spending will probably accelerate going into the Christmas season at the end of the year. And that is good news for the US.

Q: So it’s going to be some good shopping for retailers and are cash registers going to be ringing? This resilience on part of the consumers, I guess is lot to do with the big drop of 24-25% in oil since mid July. How much of it is due to the fact that despite the housing market continues to sort of crumble and Americans are not able to use them as ATMs anymore, the job market still looks healthy, there is  hiring going on and wages are picking up? Is that the reason people are able to still spend?

A: I think that is the key thing. The cash machine here, the ATM, is not the valuation in house here, that is not how the US consumers actually behaved over these past several years of the bull run in housing.

It has been about jobs and wages and that is really the way I would describe the machine of the US consumer.

As long as they have jobs and are being paid, they are going to spend. It is not about where the housing market and valuations have gone.

Having said that, the US economy is clearly slowing on a structural basis because of the declines we have had in people entering the labour force.

So you're only got to be printing something around a 100,000 or so on non-foreign payrolls. But that is infact close to the speed limit for the US economy in terms of adding jobs.

So the unemployment rate is probably going to stay firm at around the 4.5% handle, and wages of those scarce bodies are still going to be supported and that is critical if we are going to have this optimistic view which is that a soft landing is possible in midst of this sharp downturn in housing.

Q: Then assuming that there is no move in December from the Fed, what happens in Q1?

A: I still the Fed is going to have to keep assessing not only where the housing market's going, but the other negatives currently here in the US. For instance, manufacturing is still on the decline and is likely to continue to decline going into early next year.

So you have serious cross currents that are going on. You are still going to have the housing market going down into early next year, you still going to have manufacturing likely moving down. In that environment you are not going to get a Fed that is eager to do anything at all with interest rates.

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