Gokarn feels that government and RBI should not ignore rating downgrade risks.
The Federal Reserve will buy a total of USD 600 billion of bonds under its newest stimulus program, known as QE3, and is likely to buy Treasuries outright after its "Operation Twist" stimulus ends in December, according to a Reuters poll of economists on Friday.
While some Washington leaders demanded Tuesday that the Federal Reserve come through with more stimulus, the reality could be that it has run out of ways it can help.
Three top Federal Reserve policymakers on Monday laid the groundwork for a third round of bond purchases, saying the US recovery was weak and unemployment far too high.
Uncertainty about US fiscal policy, Europe's sovereign crisis and slower global growth have turned the US economy into what feels like a slow-moving zombie.
With bond yields and mortgage rates already at historic lows, the Federal Reserve's move to prolong the shelf life of Operation Twist is unlikely to do much to lower US interest rates.
Indian equities pared losses in the last couple of hours of trade as both the BSE Sensex and NSE Nifty closed marginally lower as compared to more than 1% fall since early trade on Friday.
US Federal Reserve policymakers still see a "pretty high hurdle" before they would unleash a third round of quantitative easing, or QE3, a top Fed official said on Friday.
Paul Edelstein, director-financial economics at IHS Global Insight says, the Fed is trying to keep their powder dry to see if some of the downside risks start to turn up in the jobs numbers and inflation numbers.
Kevin Logan, chief US economist at HSBC says, the FOMC is quite concerned about the state of the labour market. "Job growth has slowed down quite rapidly in last four months. If we don‘t see drop in unemployment rate in next few months, we may get a QE programme later this year," he adds.
Alroy Lobo of Kotak AMC believes global events are likely to determine the market direction ahead, with issues in the Eurozone remaining the key overhang.
Global markets were closing watching the Federal Reserve's meeting and were anticipating a big liquidity boost. The Fed however, said that it was extending its Operation Twist program by buying USD 267 billion in longer-dated securities by the end of 2012.
The Federal Reserve move to restrict monetary stimulus to the Operation Twist amount and not include QE has eased commodity prices and resulted in sharp fall in Brent Crude, which is positive for bonds, says Mohan Shenoi, Kotak Mahindra Bank.
Is an extension of Operation Twist good for Indian equities?
The Federal Reserve on Wednesday extended its monetary stimulus to a US economic recovery that looks at risk of stalling, renewing its effort to depress borrowing costs by selling short-term bonds to buy longer-dated ones.
Geoff Lewis of JPMorgan Asset Management highly doubts that the Fed will go for a third round of QE as he believes the US economy is enjoying a slow recovery.
All eyes are on the outcome of the FOMC meeting later tonight as Chairman Ben Bernanke is expected to expand Operation Twist to boost growth and buy protection against a deeper crisis in Europe. The Fed is also likely to keep rates unchanged.
Taking the handcuffs off the American banking system will do more to stimulate the economy than another round of money-printing, analyst Dick Bove said.
No matter what the Fed does, some corner of the financial markets will be unhappy Wednesday afternoon.
Gold ticked higher on Wednesday on speculative buying driven by hopes the US Federal Reserve may extend its long-term bond-buying programme to stimulate the economy, a move which would boost bullion's appeal as a safe haven.
The US central bank will most likely ease monetary policy when it meets this week as recent data point to a worsening labor market and the crisis in Europe intensifies, Goldman Sachs said.
Steve Brice of Standard Chartered Bank says that while inflation continues to be a major concern for India, the scope for further monetary policy easing by the Reserve Bank of India is quite limited at the moment.
With Spain on the boil and world leaders meeting, US stocks could tread water again Tuesday as the Fed starts its two-day meeting.
Several Federal Reserve policymakers last month thought the US central bank might need to do more to support the economy if the recovery stumbles, but there was almost no support for extending its "Operation Twist" program, due to end in June.
The US Federal Reserve on Wednesday repeated its promise to leave interest rates on hold until at least late 2014 but offered few clues into whether it might offer additional stimulus later this year.