US Fed deems September rate hike 8216 less compelling 8217

This is due to the economic turmoil in China.


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By :  ,  Financial Analyst

New York US Federal Reserve president William Dudley said yesterday (August 26th) that a rate rise in September now "seems less compelling" than it was last month.

The comment sent markets up, with the China's Shanghai Composite index closing up 5.4 per cent to 3,085.42 today, its biggest one-day gain since June 30th.

The Nasdaq Composite jumped 4.24 per cent overnight,  while the Dow Jones Industrial Average and S&P 500 gained 3.95 and 3.90 per cent respectively.

Mr Dudley said the economic turmoil in China had made the case for a rate rise harder to make. "The slowdown in China could lead… to a slower global growth rate and less demand for the US economy," he said.

He added that the US central bank was also "a long way from" engaging in more quantitative easing to prop up the economy.

September rate hike remains on the cards

However, he didn't completely dismiss a September rate rise, saying the case "could become more compelling by the time of the meeting as we get additional information on how the US economy is performing and… international financial market developments, all of which are important to shaping the US economic outlook".

This comments contrasts with the Fed's minutes from its July meeting that stated conditions for a rate increase are "approaching".
 
"Most judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point," the minutes from the Federal Open Market Committee's (FOMC) said.

The committee noted that the labour market "had continued to improve, with solid job gains and declining unemployment". However, it added that "some members continued to see some downside risks to inflation from the possibility of further dollar appreciation and declines in commodity prices".

The Fed's key interest rate has been kept near zero since December 2008. Many analysts have argued that the Fed will raise rates twice this year, with the first hike coming in September. 

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