Fed Finally Decides This Week

It feels like the September FOMC meeting has been a long time coming, with so much talk about it. On Thursday, the talking stops and the meeting takes place. The decision whether or not to raise interest rates is a contentious one, with clashing data recently and heavy lobbying. The IMF, the World Bank and now the Bank for International Settlements have all cautioned against the Fed hiking.

A piece in the Wall Street journal cautions about the Fed moving too soon, highlighting countries that have hiked in recent years only to be forced back to cutting rates in the face of weakening employment and inflation, including Australia, New Zealand Sweden and Canada. For my part, I feel they could raise rates and probably should, but I don’t think they will given previous signals and with the implied tightening effected from recent volatility, at which point we will all start talking about December!

When will the BoE lift off?

From the Bank of England, as last week drew to a close Kristin Forbes commented on the effect that the exchange rate has on a currency, saying that rates are likely to rise sooner than later, but clarifying that this still depends on the evolution of the economy. The week starts off quietly, though inflation, employment and retail sales figures over the next three days will add further fuel to the hiking fire.

Going the opposite way

In Japan, the central bank meeting comes to a close tomorrow with no changes to policy expected. There may be comments about any further weakening of the Yen and its impact on import prices. There may also be comments on diminishing policy options given the level of government bonds the BoJ have already bought.

China announced reforms to the State Owned Enterprises over the weekend including diversifying shareholder structures, with a couple of the railways immediately looking for large merger deals. They further reduced the liquidity required by banks, allowing them to reduce the reserve ratios at times of reduced liquidity. This is expected to boost growth in the longer term, though factory output and fixed asset investment were weak, adding to worries of a further slowdown over the weekend. This morning has seen China equities down, with talk of further cuts in interest rates this year as they move in the opposite direction to the US.