Fed: Rate hike is not to be expected in September – Commerzbank

Dr Christoph Balz, Research Analyst at Commerzbank, notes that recently New York Fed President Bill Dudley, one of the heavyweights of the US central bank, gave three reasons why the Fed should be careful with rate hikes at present.

Key Quotes

“Firstly, Dudley said the current US monetary policy was only “slightly accommodating”, arguing that the neutral short-term real interest rate was around 0%, not much higher than the actual level of -1%. Also, the risks to the economy were rather to the downside, he said. Secondly, financing conditions in the US were currently influenced by external risks. And thirdly, risk management considerations also advised caution, because interest rates were near the zero floor, and raising rates prematurely involved greater risk than waiting too long. At the same time Dudley said it would be premature to rule out rate hikes this year, because Fed policy was data-dependent.

All in all, these remarks suggest that a rate hike is not to be expected in September. The Fed will surely want to wait and see whether growth picks up to 2% or more in Q3. But our forecast of a rate hike in December is still realistic.”