Prior to this month’s carnage in the world markets, the Federal Reserve had routinely engaged in public speculation that the U.S. economy has broken away from the ‘Great Recession’ and that the time for raising interest rates again was near.
The topic has been on the fore of economic debate for more than a year after the Fed reduced rates successively to their lowest point in U.S. history as a part of its Quantitive Easing strategy designed to forestall further economic malaise.
By raising rates again, so the argument goes, the Fed will have more room to reduce them again should further calamity befall the U.S. economy.
But what some have described as a near ‘freefall’ in the Chinese economy has tipped off a global rollercoaster in virtually every major market during the month of August, thus the Fed has indicated a new uncertainty about the possibility of raising rates.
Fed Vice Chairman Stanley Fischer said in an interview that it is “early to tell…we’re watching how it unfolds” before giving the caveat that markets could settle enough in the coming weeks to warrant continued consideration of a rate hike.
The board is scheduled to meet in just over two weeks wherein a decision is expected to be delivered. The concern is over whether two weeks is enough time to allow the volatility in the markets to clear so that a raise in rates does not spark yet another stock selloff.