US not ruling out September rate hike

The facade of the Federal Reserve Bank of New York headquarters in New York, US.
The facade of the Federal Reserve Bank of New York headquarters in New York, US. PHOTO: BLOOMBERG

Fed officials' decision to raise benchmark interest rate hinges on whether financial market gyrations subside

JACKSON HOLE (Wyoming) • The US Federal Reserve will give serious consideration to raising its benchmark interest rate in the middle of next month, particularly if volatility subsides in financial markets, according to a number of Fed officials last Friday.

The comments, uncoordinated but generally consistent, suggested that some investors and analysts had been too quick to discount a September rate increase, particularly as global markets finished last week on a relatively quiet note.

"We haven't made a decision yet, and I don't think we should," Fed vice-chairman Stanley Fischer said in an interview with CNBC. "We've got time to wait and see the incoming data and see what exactly is going on now in the economy." The Fed's policymaking committee is slated to meet on Sept 16 and 17.

Mr Fischer offered an upbeat assessment of the domestic economy. He described job growth as "impressive" and said there had been a "pretty strong case" to raise rates in September before the latest round of global turmoil.

He did not sound inclined to wait much longer than next month to start raising rates.

Mr Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, told Bloomberg that he saw roughly even odds of a September rate increase.

But if the Fed did choose to wait, he said it would not be for long - he suggested that it could raise rates at its next meeting in October.

Mr James Bullard, president of the Federal Reserve Bank of St Louis, said he was reserving final judgment, but that he did not see strong reasons for the Fed to delay.

Still, Mr Fischer said there was a continuing "discussion" among Fed officials, some of whom see the strength of domestic growth as a reason to raise rates, while others say the sluggishness of inflation means there is no reason to rush.

Mr Bullard, a member of the first camp, said he viewed recent global economic developments as unlikely to change his economic forecast.

The sharp fall in oil prices and the decline of long-term interest rates should increase growth, while a stronger dollar and a weaker global economy are likely to have an offsetting impact.

Mr Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis, reiterated his contrasting view that the Fed should not raise interest rates this year.

Instead, he argued, the central bank should consider expanding its stimulus campaign to address the persistence of low inflation, which can harm consumer spending and business plans for expansion.

He said the volatility of financial markets should be seen as further evidence of the weakness of the economy.

Both camps, however, agreed that the central bank should not start raising rates in the middle of market volatility.

Mr William C. Dudley, president of the Federal Reserve Bank of New York, said the gyrations of financial markets made the case for raising rates next month "less compelling".

Mr Fischer said he did not want to judge the current situation, because it was new. But if volatility persisted, the Fed would be less likely to move.

Both Mr Dudley and Mr Fischer, however, noted that the current situation might be fleeting. Mr Fischer said markets "could settle down fairly quickly".

NEW YORK TIMES

A version of this article appeared in the print edition of The Sunday Times on August 30, 2015, with the headline 'US not ruling out September rate hike'. Print Edition | Subscribe