in Jackson Hole and in Washington A senior United States Federal Reserve official yesterday left the door open for a rate rise as soon as September, even as market turbulence cast a cloud over the outlook for US monetary policy.
Stanley Fischer, the vice- chairman of the Fed’s board of governors, said at meetings in Jackson Hole, Wyoming, that it was too early to say how the recent market tumult had affected the argument for a move next month and that no decision had yet been made.
“The change in the circumstances which began with the Chinese devaluation is relatively new and we’re still watching how it unfolds so I wouldn’t want to go ahead and decide right now what the case is – more compelling, less compelling, etc,” he told CNBC.
Incoming data
“We’ve got a little over two weeks before we make the decision,” he said. “And we’ve got time to wait and see the incoming data, and see what is going on now in the economy.”
Mr Fischer spoke after William Dudley, the head of the New York Fed, appeared to dampen the prospects of a near-term move, saying the arguments for a September rise had become less “compelling”.
Mr Fischer’s comments highlight just how China’s August 11th devaluation and the market volatility it set off have complicated the Fed’s plans for a September rate increase.
Asked about the China slowdown, Mr Fischer argued that the country’s direct effect on US exports was likely to be “reasonably small”. But he added: “The concern is that there are a lot of countries influenced by trade with China . . . The question is whether interactions among those countries will amount jointly to something that will have an impact on us.”
US economic data remain strong, with second-quarter gross domestic product growth numbers upgraded to 3.7 per cent this week. The main piece of data looming is the jobs report next Friday, with the labour market’s resilience remaining key to the Fed’s case for higher interest rates.
Asked if the Fed was still on course for a rise, Mr Fischer said: “I think we’re heading in that direction. What’s happening in particular with the labour markets – and we’ll have to see if that continues – has been impressive. The economy is returning to normal. We’re not certain we are there yet.”
Dollar index
The dollar index was up 0.5 per cent after Mr Fischer’s comments. Shorter-term US treasury yields also rose.
But Wall Street largely shrugged off Mr Fischer’s remarks, with participants perhaps exhausted by the events of the preceding week.
The S&P 500 index briefly entered correction territory as it fell more than 10 per cent from May’s record high; the CBOE Vix equity “fear gauge” touched its highest point for more than six years; and the People’s Bank of China cut interest rates in response to local stock market turmoil.
However, by midday in New York yesterday the S&P was up for the week, the Vix had fallen 50 per cent from Monday’s intraday peak and US crude was on track for its biggest weekly gain since 2011.
It was a similar story for European stocks. The FTSE Eurofirst 300 fell 5.4 per cent on Monday but a rally left the index up 0.6 per cent for the week. It edged 0.3 per cent higher yesterday.
The steep declines at the start of the week mirrored the action on Chinese stock markets. The Shanghai Composite closed on Wednesday at an eight-month low after tumbling more than 43 per cent from its bull-run peak in June but jumped 10.4 per cent over the final two days of the week, prompting talk that Beijing might have intervened.
Copyright The Financial Times Limited 2015
