New York Fed President William Dudley said the prospect of a September rate hike “seems less compelling” than it was only weeks ago.
On the whole, existing economic data makes a decision to begin raising interest rates “less compelling” when the Federal Open Market Committee meets in September, said Dudley, who is a voting member of the panel.
The yield, a foundation for global finance and a gauge of investors’ sentiment toward growth and inflation, closed below 2% Monday for the first time since April amid growing fears about China’s economy, the world’s second-largest by size, and the global ramifications of its slump. The U.S. economy has added 200,000 jobs – the benchmark for a healthy gain – in five out of seven months this year.
Dudley said one important way that market volatility could influence the U.S. economy was through the so-called wealth effect, in the event that stock market losses lead Americans to cut back their spending.
“There, worldwide developments and financial market developments do have relevance because they can impinge and affect the economic outlook”, he explained.
Analysts at Morgan Stanley said on Tuesday that waiting too long to raise rates risked sending “the wrong message to markets”.
Market turmoil in recent days, including steep stock sell-offs in Asia, Europe and the United States, has called into question the Fed’s plans to raise rates possibly as soon as next month.
“Currently, developments such as the appreciation of the dollar, the devaluation of the Chinese currency, and the further decline of oil prices are complicating factors in predicting the pace of growth”, Lockhart said on Monday.
Meanwhile, a just-released survey by the National Association for Business Economics found that only 37% of economists believe the Fed will raise rates next month.
Dudley is the most senior U.S. central banker to speak publicly since the market rout began.
“This isn’t up and up and away, this is the process of finding a bottom”, said Julian Emanuel, executive director of U.S. equity and derivatives strategy at UBS Securities LLC in New York. Janet Yellen also has said that raising the interest rate is something that should not be done in haste, meaning that if things appear to be a bit unstable, it could derail the interest rate hike because doing so could result in a significant blow to the economy. Lockhart said August 10 that he thought liftoff was “close” and told reporters that “from my perspective September remains a live possibility”.
“We have to look at it more seriously”, said David Keeble, the New York-based head of fixed-income strategy at Credit Agricole SA.