Fed un­likely to lift rates this week

> Un­cer­tainty re­mains over whether US econ­omy ready for an in­ter­est rate hike

The Sun (Malaysia) - - SUNBIZ -

WASH­ING­TON: The Fed­eral Re­serve opened its sixth mon­e­tary pol­icy meet­ing this year yes­ter­day again fac­ing the quandary that the US econ­omy is not clearly ready for an in­ter­est rate hike.

While some econ­o­mists say the Fed, long anx­ious to pull away from its cri­sis­era ul­tra low rate pol­icy, could sur­prise with an in­crease in the fed­eral funds rate to­day, most say it will stand pat.

With that bench­mark, cru­cial to bor­row­ing and de­posit rates around the world, stuck at 0.25-0.50%, the Fed­eral Open Mar­ket Com­mit­tee (FOMC), which sets mon­e­tary pol­icy, has re­peat­edly sig­nalled in­ten­tions to in­crease it this year.

But some weak eco­nomic data in re­cent weeks raises a ques­tion mark over the strength of the US econ­omy. And per­sis­tent weak­ness in other ma­jor economies also con­tin­ues to chal­lenge the ra­tio­nale for a rate in­crease.

Jim O’Sul­li­van, chief US econ­o­mist at High Fre­quency Eco­nom­ics, said he thinks De­cem­ber is the month for an in­crease.

“We ex­pect Fed of­fi­cials to cou­ple an on-hold an­nounce­ment this week with more pro­nounced ‘tight­en­ing is im­mi­nent’ guid­ance”, he said in a client note.

Just three weeks ago, comments made at the Fed’s an­nual cen­tral bank­ing sym­po­sium in Jack­son Hole, Wy­oming, sig­nalled that the FOMC could fi­nally pull the rate trig­ger at the end of its Sept 20-21 meet­ing.

Most no­tably, Fed Chair and FOMC head Janet Yellen said clearly that she thought the time had come.

“In light of the con­tin­ued solid per­for­mance of the labour mar­ket and our outlook for eco­nomic ac­tiv­ity and in­fla­tion, I be­lieve the case for an in­crease in the fed­eral funds rate has strength­ened in re­cent months,” she said.

Oth­ers, in­clud­ing Fed Deputy Chair Stan­ley Fis­cher, re­in­forced that im­pres­sion.

But the data since then has not sup­ported them. Job cre­ation has been rel­a­tively good, and the hous­ing mar­ket solid. But, ex­tend­ing the sec­ondquar­ter’s slump, in­dus­trial out­put and con­sumer spend­ing have stayed weak.

In ad­di­tion, in­fla­tion – which the Fed has sought with its hefty stim­u­lus pol­icy to in­crease – re­mains fee­ble, not ap­pear­ing to re­act to a world awash in easy money.

The last FOMC of­fi­cial to speak ahead of the meet­ing, Fed Gov­er­nor Lael Brainard, held firm with her view that the global econ­omy mat­ters to the Fed, and that it need not rush into a rate hike.

“To the ex­tent that the ef­fect on in­fla­tion of fur­ther grad­ual tight­en­ing in labour mar­ket con­di­tions is likely to be moder­ate and grad­ual, the case to tighten pol­icy pre-emp­tively is less com­pelling,” she said on Sept 12. – AFP

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