miércoles, 2 de septiembre de 2015

miércoles, septiembre 02, 2015

The Case for a September Fed Rate Rise

Market turmoil has cast doubt on the Fed’s September intentions. But a rate increase remains very much on the table.

By Justin Lahart

A September rate increase would give Janet Yellen’s Federal Reserve an opportunity to show markets a little tough love.A September rate increase would give Janet Yellen’s Federal Reserve an opportunity to show markets a little tough love. Photo: Manuel Balce Ceneta/Associated Press
 

After the recent market turmoil, many investors seem to have decided the Federal Reserve can’t raise rates in September. That could be a mistake.

Earlier this month, following a strong July jobs report, the chances of the Fed lifting its range on overnight rates by one-quarter of a percentage point at its policy meeting next month seemed high. It would have taken something bad happening, like a disruption in global financial markets, to stay the central bank’s hand.

China delivered just that, leading economists to trim odds of a September rate increase. Federal Reserve Bank of New York President William Dudley on Wednesday said the case for a move in September had become “less compelling.”

                            
But Mr. Dudley also allowed that the case for September could get more compelling in the weeks ahead, and it isn’t hard to come up with a scenario in which that happens. Thursday’s revision to second-quarter gross domestic product—the Commerce Department now says that it grew at a 3.7% annual rate, rather than 2.3%—shows the economy is on good footing. And with the rebound in the stock market, nerves are a little less frayed. A good August jobs report next week, reasonably calm markets and September would be very much in play.

Moreover, a September liftoff would give the Fed an opportunity to show markets a little tough love with little consequences. It is, after all, looking to raise its range on rates from the current zero to 0.25% this year. Doing so sooner rather than later would be a signal the Fed wasn’t going to let markets dictate what it should do, and that it wouldn’t predicate policy on waiting for the absolute perfect time to move.

At the same time, with inflation well below its 2% target rate, it is also clear any rate increase this year won’t likely be followed quickly by further ones. So a September move wouldn’t spook investors into thinking policy was about to get a whole lot tighter.

There are, of course, arguments for the Fed not to delay—thanks to China’s distress, inflation looks likely to get even cooler, for instance. But China hasn’t closed the door on September.

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