UNITED STATES: Interest rate hike
UNITED STATES: Interest rate hike grows in uncertainty
US interest rate hike grows in uncertainty
Global volatility may delay the pace of the Federal Reserve 's normalisation of monetary policy
The Federal Open Market Committee (FOMC) of the Federal Reserve (Fed) meets on September 16 and 17, in what will be one of the most awaited meetings in recent years.
The chance of a rates lift-off at this meeting has receded recently and currently stands at 32%, as anticipated by the Fed Funds futures ***THIS SHOULD BE CHECKED DAY OF BY APPROVER OR FRANCESCA*****, due to heightened financial markets volatility and global economic sluggishness. The chances of a December hike are higher,…show more content… Meanwhile, the FOMC will have more time to assess whether the factors that have held back inflation, the strong dollar and low oil prices, are fading.
Early this year, GDP growth stagnated because of transitory factors (harsh winter weather and the West Coast ports disruption) and inflation declined due to the dollar appreciation and a fall in the oil price (see DB198755). For most of the year, the dominant view within the FOMC members has been that the slowdown in both growth and inflation was temporary and that it would fade away as the year progressed.
CALLOUT: 3.7% Annualised second-quarter real GDP growth
This prediction proved right for growth, as second-quarter GDP growth rebounded to 3.7% [http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm]. However, inflation has stayed low.
The July FOMC minutes [http://www.federalreserve.gov/monetarypolicy/files/fomcminutes20150729.pdf] first raised doubts about this view, highlighting how the recovery might be incomplete, due to slowing global growth, while financial conditions have tightened due to the China-led equity sell-off. At that meeting, almost all members would need more evidence to be reasonably confident in the inflation outlook’s improvement.
Recent developments - h2
In August, a major global event clouded the outlook further: the People 's Bank of China (PBoC) introduced changes to the renminbi