World Economy

Sept. Rate Hike in US Evident

Sept. Rate Hike in US EvidentSept. Rate Hike in US Evident

Despite volatile markets and a deceptively tepid recovery, the Federal Reserve looks unequivocally committed to raising interest rate.

Kim Chase, research analyst at BBVA, notes that the US Fed is getting enough data points in order to go ahead with September rate hike after the recent US wages posted a growth of 0.3%, the fastest monthly pace since January.

“Average hourly earnings increased 0.3% for the month, the fastest pace since January, and held steady at 2.2% YoY growth for the second month in a row. While this may be too little too late to encourage a September rate hike, it at least hints that wage growth is moving in the right direction,” FXStreet said in its report.

“Stronger wage growth is also a good sign for the inflation outlook. The Fed wants to feel “reasonably confident” that inflation will move toward their target in the mid-run, and as Vice Chair Stanley Fischer noted, “because monetary policy influences real activity with a substantial lag, we should not wait until inflation is back to 2% to begin tightening.”

“In this case, positive wage data for August may be just enough to convince the Fed to increase rates now before wages and (core) inflation accelerate even more in the coming months.”

“If the Fed truly believes the latest labor market data, they should not hesitate to begin the normalization process as soon as possible. Unfortunately, other economic developments, particularly the vulnerable situation in global financial markets, have become an unwanted distraction from the Fed’s dual mandate.”