September rate hike ‘less compelling’: Fed’s Dudley

Dudley suggested, however, that the Fed’s decision will depend more on global economic troubles then market volatility.

Barclays, for example, now expects the Fed will not raise rates until March.

China’s size alone makes its challenges significant to the U.S. economy, Dudley noted, reiterating comments he made in Rochester, N.Y., earlier this month.

Market correction or sustained decline? Also, three-month returns are worse when the Fed is easing. But many are speculating about what the central bank may do.

There has been widespread speculation the Federal Reserve would raise interest rates this year, maybe as soon as September. He added that the market turmoil “is not a U.S. problem” and was sparked by “developments overseas”.

He said that the hike would be a gradual process in which raters would remain low “for quite some time“. However he warned about overreacting to “short-term” market moves, and left the door ajar to raising rates when the U.S. central bank holds a policy meeting on September 16-17.

Fed officials have consistently said they are data-dependent as they weigh when to lift rates, and Dudley said Wednesday that domestic statistics aren’t the sole focus of policy makers.

How to raise borrowing costs without spooking the markets has been Yellen’s biggest challenge.

Since the Fed meeting in July, Barclays notes that crude oil prices have fallen roughly 15 per cent, the U.S. dollar has strengthened by 1.6 per cent and the hourly earnings print posted a surprise expectation miss. The International Monetary Fund has warned raising rates could increase pressure on emerging economies, while economist Larry Summers, a former adviser to President Barack Obama, wrote in an opinion article in Monday’s Financial Times that a rate increase in the near future would be “a serious error” in the current conditions. “The Fed does not have to do the job”.

Before the recent overseas developments, many analysts expected rates to be raised at that meeting.

“Employment levels on Long Island and in parts of upstate New York… have also climbed and are at our near record highs”, he told reporters in lower Manhattan.

Fears are growing about a China-led global economic slowdown after an 8.5 percent plunge in Chinese stocks triggered a global rout on Monday. A recent Reuters poll showed the top U.S. economists think the housing market is strong enough to sustain an interest rate hike this year.

“That’s especially the case given that it was always likely to be a line-ball decision taken by Yellen, and in these circumstances the chair can be forgiven for waiting until December”.

“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“, said Lockhart, according to his prepared remarks at a forum in Berkeley, California.