Subject: Fwd:FT : Fed will deepen jitters if it pushes out rate rise
Fed will deepen jitters if it pushes out rate rise
The Federal Reserve won't reassure financial markets by backing away from a rate rise this year. Instead, such a move risks doing the opposite.
Economists at Morgan Stanley made the argument on Tuesday as they stuck to their forecast that rate setters on the Fed's Open Market Committee will tighten policy at their December meeting.
A combination of the fears of a deep slowdown in China's economy and the subsequent volatility across financial markets has prompted traders to price out a move from the Fed in September and puts the chances of a tightening at the December meeting at less than 50 per cent.
Morgan Stanley's US economists reckon that December is still the most likely meeting at which policymakers will take the Fed funds rate up a quarter percentage point from the level it has been at since the depths of the financial crisis. From a note they put out on Tuesday:
Ultimately, we think the Fed remains a cautious body that would want to seethe dust settle before making a determination to move forward with a rate hike.
We believe they will take a pass on September, but will continue to stay hopeful of a hike in the not too distant future. We think that not too distant future is December.
It is too early to throw in the towel on a rate hike this year - to do so at this point we think would send the wrong message to markets and risk pushing market jitters to greater heights.
