In July, the Federal Reserve indicated that it would soon raise interest rates for the first time since 2006, and many analysts began expecting the move as soon as September. But the major emerging-markets downturn and rapid increase in the value of the dollar over the past month have thrown this time line into question, causing some to wonder whether the Fed will raise rates in 2015 at all.
Even some in the Fed expressed concern in the July meeting that the economy has not yet recovered to a point where an immediate rate hike is prudent. Even more worrisome now is the stock market crash in China and the expected slowdown there will hurt U.S. economy. Currencies from Brazil and Colombia to Canada and Russia have also been plunging against the dollar all month, which is hurt domestic corporate earnings and likely lead to fewer exports.
This may not be enough to change the Fed’s preference to move now, however. On Wall Street, both JPMorgan Chase and Citi still expect the rate to go up in September, with Citi North America chief William Lee telling clients that “the September timetable for a Fed liftoff remains,” according to CNBC.
Barclays disagrees, expecting the Fed to now wait until March 2016, while Morgan Stanley is projecting December. “They will likely take a pass on September,” projected Morgan Stanley, “but we believe they will continue to stay hopeful of a hike in the not too distant future. We think that not too distant future is December.”
The real answer about when the Federal Reserve will increase interest rates is that nobody actually knows — likely not even the Fed itself. What happens in the next few weeks before it holds a meeting on September 16.
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