“Such exceptionally low real interest rates are unlikely to be appropriate for an economy with persistently strong consumption growth and tightening labor markets”, Lacker said in a statement.
Additionally, the GDP is steadily growing at a seven percent rate because unemployment is not that critical as it is in southern Europe where thousands of people lose their jobs overnight due to rapid economic contractions.
No longer muzzled by the pre-meeting blackout, Fed officials will be out in droves to air their views, with the highlight a speech by Fed Chair Janet Yellen in Massachusetts on Thursday.
China’s economy has slowed for four straight years – from 10.6 percent in 2010 to 7.4 percent last year.
The US Federal Reserve’s decision to leave its zero interest-rate policy unchanged has given emerging economies, including China, some breathing room, but the Fed must stay cautious of the havoc a future rate hike could cause.
“A lot of our focus has been on risks around China, but not just China, emerging markets more generally and how they may spill over to the United States”, she said. It also needs to tend to its weaknesses such as snowballing household debt so it does not jeopardize the economy when the US raises rates.
With a Chinese slowdown blamed for spooking the Fed last week into postponing a rate hike, China’s flash manufacturing purchasing managers’ index on Wednesday will be closely watched for signs of deterioration in the world’s second-biggest economy.
Mark Vitner, an economist at Wells Fargo, said he was a bit disappointed by the Fed’s delay because it suggested that the USA economy still wasn’t at full health. “The question is whether or not there might be a risk of a more abrupt slowdown than most analysts expect”.
US President Barack Obama will host Chinese President Xi Jinping at the White House next week, and the pair are expected to discuss the recent instability in financial markets driven by China’s economic challenges and investors anticipating a USA interest rate rise.
Financial markets had been zigzagging with anxiety this summer as investors tried to divine whether the Fed would start phasing out the period of extraordinarily low borrowing rates it launched at a time of crisis.
Remember that this rally was characterized by leverage and by the sucking in of unsophisticated investors, many without a grade school education.
At her news conference, Yellen stressed that even after the first increase from zero, interest rate policy will be “highly accommodative for quite some time”.
Historical evidence shows that nearly all major financial crises since 1980 occurred after the Fed tightened its monetary policy.
“Developments we saw in financial markets in August in part reflected concerns there were downside risks to Chinese economic performance”, she said.
After years on an easy-money stance, the prospect of a Fed rate hike has added to turmoil in global markets. It accounted for 13.3 percent of global gross domestic product past year , from less than 5 percent a decade earlier, according to World Bank data.