The US Federal Reserve is unlikely to tighten monetary policy until the current period of economic stress subsides, says Standard Life Investments.
As a result of recent economic volatility, and poor data notably out of China, the US Federal Reserve is unlikely to begin to raise rates, said Standard Life Investments in a recent economic update.
“Periods of financial stress can themselves cause economic activity to slow, or even fall, if they persist at a high level for long enough,” the update said.
Standard Life Investments noted that the New York Fed president, William Dudley, said commencing a normalisation process is “less compelling” than it was a few weeks ago.
Mr Dudley said that although he hopes to raise rates this year, the decision to raise rates in September will hinge on how the economic data evolves.
Fed vice chair Stanley Fischer confirmed that the Fed is monitoring the developments in China and their effects on other economies closely.
“Our own interpretation of Fischer and Dudley’s comments is that as long as the recent stress in financial markets abates and the economic data [does] not roll over, September will be a live meeting,” Standard Life Investments said.
“However, we ultimately think that lingering uncertainty will prevent an actual change in policy and that therefore December is the more likely timing for lift off.”
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