Real GDP growth will be revised up significantly and unemployment will be revised down the new Fed projections. As such, not initiating monetary policy normalization at the September meeting is hard to sell for the Fed doves. But in light of the financial market volatility and the situation in China the Fed could opt to temporary postpone lift-off, in particular if market conditions worsen meaningfully this week. In that case the committee may make the October meeting more interesting, for example by attaching a press conference to it too. We don’t think, however, that the Fed will pay much attention to what organizations such as the World Bank or the IMF have to say on US monetary policy. The former agency caught the headlines recently when it suggested that a US interest rate hike risks unleashing turmoil in international markets.
“It is important to remember that the Fed’s mandate is to do what is right for the US and the domestic economy has been strong over the past several months; data on retail sales, the labor market, durable goods orders and housing have been robust and revisions have mostly been to the upside too. In particular, the expanding workweek in combination with decent employment gains means that the aggregate hours worked are spiking higher. With one month left of the third quarter the total labor input is already running at 3.1 percent annual rate. So even without much productivity growth at all, the data are suggesting strong momentum in the third quarter too and moving off the zero bound is definitely not going to break this recovery.
No, they will hold fire
Anna Stupnytska, Global Economist, Fidelity Worldwide Investment:
“I think the combination of domestic and external factors do not favour an immediate hike. On the domestic side, US economic fundamentals remain relatively solid for now.
The labour market improvement continues, with the unemployment rate now at the mid-point of the Fed’s NAIRU estimate. But wage growth has remained subdued suggesting there is some slack left in the labour market, in line with broader measures of unemployment.
