Tags: federal reserve | rate hike | china | yuan
September Fed Rate Rise Seen as Economists Shrug Off Yuan
(Dollar Photo Club)

September Fed Rate Rise Seen as Economists Shrug Off Yuan

Friday, 14 August 2015 06:05 AM

Economists are standing by their projections for a September Federal Reserve interest-rate increase, despite a surprise devaluation in China’s currency that has heightened uncertainty in the international outlook.

Seventy-seven percent of forecasters in a Bloomberg survey taken Aug. 7-12 said that the Fed will raise its main policy rate next month for the first time since 2006, up from 76 percent in July. All respondents were given the opportunity to revise their forecasts following the yuan news.

Eleven percent projected a December rate move in this survey, while 8 percent expect an increase at the October meeting, which isn’t followed by a press conference.

Fed policy makers including Atlanta Fed President Dennis Lockhart and St. Louis’ James Bullard have recently voiced confidence in the state of the recovery. New York Fed chief William C. Dudley said Wednesday he was hopeful for a rate move in the “near future.”

The labor market has shown continued progress, with U.S. firms adding 215,000 jobs in July compared with the year-to-date monthly average of 211,000, even as wages and productivity lag and a slowdown in China dims the international outlook.

“We are still fairly cautious but see growth holding up enough for the Fed to begin to start normalizing short-term interest rates at the September FOMC meeting,” Sam Bullard, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina, wrote in an Aug. 12 research note. “Admittedly, it is a close call.”

Dollar’s Strength

Retail sales data on Thursday gave Federal Reserve policy makers another signal that the economy is strengthening. Sales at U.S. retailers rose in July on growing demand for everything from cars to clothing, advancing 0.6 percent after little change in June, Commerce Department data show.

Trade remains the primary risk to the U.S. outlook, Wells Fargo’s Bullard wrote, with a stronger dollar and sluggish global demand two key obstacles.

China’s decision on Tuesday to devalue the yuan may increase those headwinds. The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 major peers, was 0.4 percent higher at 9:30 a.m. in New York. Even so, economists said that it doesn’t take an increase off the table for the Sept. 16-17 meeting if domestic growth stays strong.

“The Fed might still be clear to hike in September,” said Gennadiy Goldberg, U.S. strategist at TD Securities LLC in New York. “It’s a wait and see -- it’s too soon to tell.”

While most economists look for liftoff next month, the market is less sanguine. Investors on Thursday were pricing in a 48 percent chance that the Fed will raise rates in September, based on pricing of federal funds futures contracts. The odds assume the effective rate will rise to 0.375 percent after liftoff.

To contact the reporters on this story: Catarina Saraiva in Washington at asaraiva5@bloomberg.net; Jeanna Smialek in Washington at jsmialek1@bloomberg.net To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net Alister Bull, Mark Rohner

© Copyright 2020 Bloomberg News. All rights reserved.


   
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Economists are standing by their projections for a September Federal Reserve interest-rate increase, despite a surprise devaluation in China's currency that has heightened uncertainty in the international outlook. Seventy-seven percent of forecasters in a Bloomberg survey...
federal reserve, rate hike, china, yuan
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2015-05-14
Friday, 14 August 2015 06:05 AM
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