The Fed’s Interest Rate Hike Is Overdue

There are only two more meetings left for the Fed this year – in October and December – and it’s likely that the Fed might want to see a few more employment reports and monitor the Chinese markets before making the decision.

Ms Yellen said she still believed the fundamental mechanics of an economy will eventually kick in and lead to more inflation, but the central bank seemed as uncertain as ever as to when that might happen.

The World Bank’s chief economist recently warned that the Fed risks triggering “panic and turmoil” in emerging markets and should hold fire until the global economy is on a more solid footing. Tighter monetary policy can also boost the dollar, which tends to weigh on commodities priced in the USA unit because it makes them more expensive to users of other currencies.

On Friday, December gold temporarily traded above $1,140 an ounce on Comex, and ended the session at its highest level since September 1.

Now in its seventh year of expansion, the USA economy is growing at a mere 2.2 percent annual rate. According to Yellen, every meeting has possibility for a rate increase. Its stock fell 93 cents, or 1.1 percent, to $84.35. The Standard & Poor’s 500 index rose 17 points, or 0.9 percent, to 2,013 and the Nasdaq composite added 57 points, or 1.2 percent, to 4,946.

The US Fed said information received since the Federal Open Market Committee met in July suggests that economic activity is expanding at a moderate pace.

“An argument can be made for a rise in interest rates at this time”, Fed Chair Janet Yellen said at a news conference on Thursday.

Interest rates affect asset prices, but so does the longer term economic outlook, and the indication in financial markets is that the negative effect on the long-term outlook outweighs the positive effect of lower interest rates.

Analysts and traders had been almost evenly split on whether the Fed would raise rates for the first time in almost a decade, though markets had priced in only a one-in-four chance of a hike.

The dollar slumped to a three-week low against a basket of major currencies, while European shares came under pressure from the Fed’s downbeat comments on the state of the economy. Only Lacker, who wanted to raise rates by a quarter percentage point, dissented on Thursday.

OIL DOWN: The price of USA crude fell $1.39 to $45.53 a barrel on concerns over the slowing global economy.

The Fed now expects that its preferred measure of inflation to rise only 0.4 percent this year, down from 0.7 percent in June.