September rate hike now ‘less compelling’, says Fed’s Dudley

This time, battles over Planned Parenthood and education could lead to another standoff between the Republicans and the White House, and Heckscher doesn’t see the Fed making a move under threat of a shutdown.

The Federal Reserve has hinted at a September tightening of US benchmark rates after eight years of near-zero interest rates.

But the wild market swings Monday amid fears of an economic slowdown in China may have shattered the Fed’s carefully laid plans for an increase in the main borrowing rate as soon as September.

Overall, Dudley was upbeat about the state of the U-S economy. Viewed in that light, it’s “reasonable to read this as a carefully constructed response by the Fed to recent market developments”, JPMorgan’s Feroli wrote in a note to clients.

Now she’s even getting pressure to change course from the man who was once her main competition for the Fed’s top job: former U.S. Treasury Secretary and Obama adviser Larry Summers. “I don’t think it’s a straight shot up”.

The 30-day federal funds futures contract shows that investors feel similarly.

“It’s not just how we’re performing today, it’s all the things that affect the outlook beyond the next few months“, he said in a news briefing at the Fed’s New York branch in lower Manhattan.

Gus Faucher, a senior economist at PNC Financial Services Group, says the market turmoil makes increasing rates next month “a tougher call” but there are many reasons why the Fed could comfortably do so.

“It is too early to throw in the towel on a rate hike this year – to do so at this point we think would send the wrong message to markets and risk pushing market jitters to greater heights”.

“Data is not just about the economic releases”, which have “actually been pretty positive”, Dudley said. In his prepared remarks, he didn’t comment on the national economic outlook or monetary policy.

Until quite recently, the Fed has expressed limited concern over China’s market turbulence, with policy debate focusing on evidence of improving labor markets and solid economic activity and whether it should raise rates next month or in December and at what pace it should proceed afterwards.

China’s Shanghai Composite dropped more than 8.5 percent yesterday because of lower demand for Chinese exports and lower prices for most commodities, including oil.

“This isn’t up and up and away, this is the process of finding a bottom”, said Julian Emanuel, executive director of U.S. equity and derivatives strategy at UBS Securities LLC in New York. Given his high rank, if Fischer signals that the Fed should wait, September looks very unlikely. Orders for all durable goods – items meant to last at least three years – rose 2 percent, exceeding all forecasts of economists surveyed by Bloomberg.

“We have got a lot that is moving in the right direction here”, Mr Vitner said.