Fed may postpone September interest rate hike

fortune-Recent events appear to have tipped the balance of power at the Fed.

A rocky stock market and economic troubles in China appear to have spooked the Federal Reserve.

Officials at the Fed seem to be backing off the stance that they will raise a key interest rate in September. A report in the Wall Street Journal said there is no consensus among officials at the U.S. central bank for an interest rate hike this month, which could have come as early as next week. The Fed has a policy meeting scheduled on Sept. 16-17.

Some Fed officials appear to be itching to raise rates because the labor market is improving, and they are worried that keeping rates near zero for too long could breed financial bubbles. Still, other Fed officials would like to hold off because inflation remains low and the dollar is rising. A rate increase would likely give a bigger boost to the dollar, hurting U.S. exports and the economy. This is where the two camps have stood for the past few months, with the pro-hike camp mostly in control.

But the events of the past few weeks appear to have pushed the balance of power at the Fed in favor of the cohort that would prefer to hold off. A Bank of America report on Wednesday stated that the Fed has never raised interest rates during times when the market has been as rocky as it has been lately. And China’s slowdown is also worrying some central bank officials.

What’s more, last Friday’s jobs report showed signs that the labor market may be weaker than previously thought.

Fed officials still say they plan to raise interest rates before the end of this year.

The news of the possible delay was met with some disappointment on Twitter, with some commentators saying a delay would result in more stock market turmoil, not less.

The Fed is its own worst nightmare. Uncertainty over whether they’ll hike rates is causing the very volatility they’re concerned of.
— Antony Filippo (@Vconomics) September 10, 2015

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Pramod Baviskar

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