Most economists say Fed will raise rates in 2015

The minutes to the July 28-29 meeting of the policy-setting Federal Open Market Committee, released last week, showed both a caution over still-low inflation and a concern over China’s economic malaise.

This might not be the first time that Summers has expressed such views, but his article comes just a few weeks head of the next policy meeting by the Fed, one of the most closely-watched for years, as some analysts predict that rates could move off their current record lows.

The minutes from the Federal Reserve’s July meeting gave no specific clues on whether the central bank’s officials were poised to raise interest rates in September.

Several participants in the meeting “noted that a material slowdown in Chinese economic activity could pose risks to the U.S. economic outlook”.

Fed policymakers have said they greatly prefer raising rates at a meeting where a news conference is scheduled. China’s surprise devaluation this month may spur its exports by loosening the currency’s connection to the dollar. Secondly, the Fed has to consider that market gloom might be a sign that the global economy is in worse shape than it has assumed, and the drag on the U.S. economy could be bigger than previously factored in by the central bank.

“(It) will adversely affect employment levels because higher interest rates make holding on to cash more attractive than investing it. Higher interest rates will also increase the value of the dollar, making U.S. producers less competitive and pressuring the economies of our trading partners”, he wrote. Instead, rates, especially short-term rates, look like those of an economy stalling. The U.S. 10-year Treasury note fell to a yield of 2.12 percent from 2.19 percent on Tuesday.

Summers believes that continued satisfactory growth requires sticking with low interest rates.

“I expect the normalization of monetary policy – that is, interest rates – to begin sometime this year“, Atlanta Fed President Dennis Lockhart said in remarks prepared for delivery to a forum on public pension funding in Fed Chair Janet Yellen’s home town. NEED FOR CAUTION With market jitters hitting home, however, the Fed has a number of reasons to be cautions even about taking that first step.

Stocks posted solid losses on Wednesday as investors got mixed signals from the Federal Reserve over the possibility of an interest rate hike in September. At this moment of fragility, raising rates risks tipping some part of the financial system into crisis, with unpredictable and unsafe results.