Fed Divided Between September and 2016 Rate Hike

With the Federal Reserve set to hold its monthly policy meeting this week, the debate among central-bank watchers on whether the world’s most influential central bank will raise interest rates has intensified.

According to a poll by Reuters in August, the Fed is widely expected to raise short-term interest rates for the first time in nine years as early as September amid improving economic fundamentals in the U.S. But an abrupt devaluation of the yuan by Chinese authorities in August and renewed turmoil in global financial markets has had some market watchers paring back their forecasts.

Former Treasury Secretary Larry Summers is one of the market watchers calling for a delay in the rate hike on the back of growing financial market volatility. Summers also cited subdued inflation and a low labor force participation rate in the U.S. as reasons for the Fed to hold fire for now.

Meanwhile, the World Bank’s chief economist has joined Christine Lagarde, managing director of the International Monetary Fund, in warning that a rate rise could trigger “panic and turmoil” in emerging markets.

To be sure, there are still analysts who are placing their bets on an interest rate hike this week.

via CNBC

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza