Date
18 January 2017
A police officer patrols with his dog outside the Federal Reserve building. Fed officials are reportedly losing the argument for a Thursday liftoff of US interest rates. Photo: Reuters
A police officer patrols with his dog outside the Federal Reserve building. Fed officials are reportedly losing the argument for a Thursday liftoff of US interest rates. Photo: Reuters

Fed seen wavering on rate hike before Thursday meeting

All eyes will be on the US Federal Reserve this week as it decides whether to raise interest rates on Thursday.

Fed officials are due to convene the Federal Open Market Committee, a crucial meeting expected to eclipse other important developments such as China’s industry, eurozone inflation and rate moves in Japan and Switzerland.

Reuters is reporting that the guessing game over a potential Thursday liftoff of US interest rates is wide open, with Fed officials themselves wavering.

Analysts said the Fed could opt for a December launch instead, according to Reuters.

An unexpected drop in the jobless rate to 5.1 percent and an upward revision in second quarter growth to 3.7 percent support calls for a hike as the labor market tightens and utilization is at its best level since the global financial crisis.

Yet, futures only price a 24 percent chance of a hike as emerging markets, particularly China, struggle, inflation remains benign and some notable Fed watchers, like former Treasury Secretary Larry Summers, argue against a hike.

“My best guess is that the committee is also confused about what the right decision is and as a result they are waiting to the last minute with making a decision,” Torsten Sloek, the chief international economist at Deutsche Bank said.

China’s slowdown is likely to be a key worry for the Fed and a 14 percent drop in Chinese imports over the past year, the 10th straight monthly drop, along with an annual factory gate price deflation of almost 6 percent, does not help rate hike arguments.

Data on Sunday showed growth in China’s investment and factory output missed forecasts in August, raising the chances that third-quarter economic growth will dip below 7 percent for the first time since the global crisis.

Factory output rose 6.1 percent last month from a year earlier, less than the 6.4 percent expected but up from July’s 6.0 percent.

In Europe, the key item will be final August eurozone inflation data due on Wednesday, likely supplying another arguments for the European Central Bank to beef up quantitative easing.

Price growth is seen holding steady at 0.2 percent, far off the ECB’s target of just under 2 percent and ECB President Mario Draghi has already warned that the eurozone could dip back into deflation on lower commodity prices and weaker growth from emerging markets.

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