China Related Market Events Overwhelm The Fed

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China-Related Market Events Overwhelm the Fed? The Chairman of the Federal Open Market Committee (FOMC), William Dudley, appeared last week to virtually rule out any chance of an increase in the federal funds target at the 16-17 September policy meeting. As President of the Federal Reserve Bank of New York, he is probably the best qualified member of the FOMC to understand the implications of tightening US financial conditions. That having been said, Mr Dudley was careful not to entirely rule out the case for normalisation, depending on incoming information about the state of the economy. Given the short time horizon between now and the next policy meeting, it would seemingly require significantly stronger-than-expected data to bring September back onto the table as a plausible launching point for a higher policy rate. Meanwhile, Fed Vice Chairman Fischer asserted last Friday that September still remains an option to raise the federal funds rate and that the fallout from China is being assessed. He believes that the direct economic impact from a slowing Chinese economy on the US is modest and that the domestic economic backdrop continues to normalise. This would, therefore, be conducive with a more conventional policy stance at some future point. Some commentators are now focussing on October’s FOMC gathering as being a more plausible option to raise the policy rate. There is, however, a problem: no press conference is scheduled in the aftermath of that meeting. The FOMC

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