Split may delay US Fed’s 1st rate hike in 9 years
Print Edition
FEDERAL Reserve Chair Janet Yellen faces a rare open split among her team as they head into a meeting tomorrow and Wednesday to again weigh raising interest rates.
A new wave of doubts about the US economy among several Fed officials is almost certain to see the Fed again put off the decision for its first hike in the benchmark federal funds rate in nine years, analysts say.
A rate cut on Friday by the People’s Bank of China and signals the day before that the European Central Bank is leaning toward lower rates or more stimulus boost the argument that the world economy, and the US in turn, remains vulnerable and would not benefit from a higher US rate.
Many analysts are now betting the Federal Open Market Committee’s first step to begin lifting the fed funds rate up from the 0-0.25 percent level will not happen until next year.
“It is highly unlikely that the FOMC will announce a change in the federal funds target range at the 27-28 October policy meeting,” said Nomura’s financial analysts.
“We continue to believe that the most likely timing for liftoff is the March 2016 FOMC meeting.”
The Fed message “will show a marking down in the Fed’s assessment of economic activity and the strength of the labor market,” with some blame put on the soft global economy, predicts Deutsche Bank.
That is not where Yellen, now in her second year at the head of the Fed, expected to be, nearly seven years after the fed funds rate was slashed to zero to combat the Great Recession.
A year ago FOMC members were confident enough in US growth that, on average, they were predicting the fed funds rate would be at 1.25 percent by the end of 2015.
Following the FOMC meeting in September Yellen said she was still confident that US growth data would justify a rate hike by the end of the year.
The FOMC appeared to be only marginally on the side of waiting, some members wanting to see just a bit more evidence from economic data that the US economy was ready.
But within weeks there were more signs of the global malaise spilling over into the US economy.
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