The euro was trading 0.3 percent higher at $1.1280, but well off its lofty perch above $1.1700 reached on Monday when the sell-off in global markets and worries about a Chinese slowdown led investors to unwind euro-funded carry trades.The market is keenly awaiting comments on policy normalisation from Fed officials attending the August. 27-29 Jackson Hole Economic Symposium.

The US Federal Reserve could have cut short the Great Recession by a year if it had set a 4 percent inflation target in 1984, but raising the target now would probably do little to help the economy, researchers said on Saturday. In addition, inflation has remained persistently below the Fed’s 2 percent target rate. “At this moment, we are following developments in the Chinese economy and their actual and potential effects on other economies even more closely than usual”. He said there are still two weeks to make a decision and we will have to wait and see the upcoming data.

A September rate hike was all-but certain less than a month ago after a slew of positive US economic data arrived earlier in the summer. The Fed generally believes that its actions relating to interest rates and bond purchases affect the real economy on a long delay.

Yet exceedingly low inflation has thrown a wrench into those plans.

The Feds key rate has been at a range of zero to a quarter-point since late December 2008. But he said many of those factors are beginning to fade.

St. Louis Fed President James Bullard told Reuters he still favored hiking rates at the Fed’s next policy-setting meeting in mid-September, though he added that his colleagues would be hesitant to do so if global markets were volatile at that time. Markets, on alert for any sign policymakers were ruling out a September liftoff, read Fischer’s remarks as suggesting a tightening would at least come this year.

Fischer, a noted Dove, could provide some clarity on the Fed’s relatively ambiguous interpretation of its short-term projections on inflationary growth.

Academics have been perplexed that prices have not risen even as the recovery strengthens. The dollar’s strength, he said, also has weighed on inflation and will continue to restrain growth in the USA, perhaps into 2017. This is despite low oil and import prices which are keeping prices of everything else lower.

Inflation by the Fed’s preferred measure has been running below 2 percent for three years. But most still like the dollar’s prospects over the coming year. Fischer also called the recent decline in energy prices a “largely one-off event”.

ANALYST’S TAKE: “The Fed is still at the drawing board with regards to the specifics of the timing of a rate hike this year”. “There isn’t anything that screams inflation or that screams financial bubble ready to explode tomorrow morning”, he said.

Hedge fund investor Ray Dalio predicted this week that the Fed will unleash major stimulus before it tightens policy significantly. But he was undecided whether to raise rates in September.

Fischer said no decision had been made ahead of the United States central bank’s Sept 16-17 meeting, with policy makers still watching to see how deep the fallout is from China’s downturn.