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Fed keeps markets guessing

Monday, August 22, 2016 - 01:37

Mixed signals ahead of the US Federal Reserve's next polciy meeting have kept markets guessing over a possible September rate hike. As Ivor Bennett reports, this week's meeting of central bankers at Jackson Hole could influence its decision.

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Markets are used to playing a guessing game. But it's not always easy, especially not when it comes to the U.S. Central Bank. Minutes from the Fed's last meeting suggested a rate hike was unlikely. But there's a growing chorus of policymakers who support one. So, which is it? (SOUNDBITE) (English) PANMURE GORDON CHIEF ECONOMIST, SIMON FRENCH, SAYING: "I don't think we'll see a rise from the Fed this year. The risks are asymmetrical. There are no real strong inflationary indicators to upside either in the labour market or the commodity route." John Williams is one of those who supports a rise - president of the San Francisco Federal Reserve Bank. He warns the economy could overheat if rates are kept too low for too long. But what if it's not long enough? (SOUNDBITE) (English) PANMURE GORDON CHIEF ECONOMIST, SIMON FRENCH, SAYING: "You need to look at the risk that the Federal Reserve gets too much ahead of the curve and snuffs out inflation, snuffs out growth. And if they do do that, and they need to loosen policy, they haven't got far to go given how close they are to the zero lower bound." The other factor is everyone else. The Bank of England, the ECB, and the BoJ - they're all in stimulative mode, so a rate hike would buck the trend. A topic for discussion no doubt at Jackson Hole later this week, at the annual meeting of central bankers. (SOUNDBITE) (English) PANMURE GORDON CHIEF ECONOMIST, SIMON FRENCH, SAYING: "I think there needs to be some material discussion of a consensus, an understanding, that central banks can't constantly compete against each other, driving their currencies lower, driving interest rates lower, whether that's sustainable." A relaxed setting, but the conversation's likely to be anything but.