September rate hike less likely in US, says New York Fed chief

Keith Berlin, director of global fixed income and credit at Fund Evaluation Group in Cincinnati, Ohio, said “markets have awakened to the realization that China’s growth story is not what it once was”.

As markets quake and stock prices fall, investors increasingly are betting that the Federal Reserve will not raise interest rates this year.

The next Fed meeting is scheduled for September 16-17. The Dow Jones industrial average jumped 619 points, and the Standard & Poor’s 500 index surged 3.9 percent – its best performance in nearly four years. Barclays said Monday it now believes the Fed will raise rates next March, rather than in September. Regardless of whether that could really happen, the talk does point to how pessimistic investors are feeling about a slowing global economy.

Market correction or sustained decline? Given his high rank, if Fischer signals that the Fed should wait, September looks very unlikely. But many are speculating about what the central bank may do. “Accordingly the odds of a September rate hike have just dropped further, and we have to push our forecast for the first move to December“. Lockhart said he thinks investments and wages in the U.S. will pick up. “Every time I get nervous I walk down the hall to our chief economist and he’s been as solid as a rock all year saying there is zero evidence of a recession looking out through 2016″.

He said that the hike would be a gradual process in which raters would remain low “for quite some time”.

The Fed hasn’t increased its benchmark interest rate in almost a decade.

Dudley added he “hoped” rates will be raised before the end of the year. “The Fed does not have to do the job”.

‘At this moment of fragility, raising rates risks tipping some part of the financial system into crisis, with unpredictable and unsafe results’.

At a press conference following a speech on the regional economic outlook in Buffalo on Wednesday morning, New York Fed president and CEO William C. Dudley expressed the idea that a rate hike at September’s Federal Open Market Committee meeting seemed “less compelling” than it was a few weeks ago following the turbulent stock market activity earlier in the week.

Traders see a 28 per cent probability that the Fed will raise its target next month, according to data compiled by Bloomberg. Many FOMC members will want to see whether the recent moves in financial markets reflect greater weakness overseas than is now apparent in available macroeconomic data… El-Erian, meanwhile, predicted the first step toward normalizing interest rates was shifting to December. There are significant questions about the Fed moving to boost the cost of borrowing in the U.S.as China’s economy has run into trouble and as financial markets have suffered significant losses.

Generally, the short-term reaction to any dovish talk out of the Fed is positive for the stock market but is this a psychological phenomenon or something that is backed up by actual market returns?