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Panel of ex-Fed officials say no rate hike in September 2015

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According to MarketWatch.com:

https://www.marketwatch.com/story/panel-of-ex-fed-officials-say-no-rate-hike-will-come-at-september-meeting-2015-09-03

Panel of ex-Fed officials say no rate hike will come at September meeting

Published: Sept 3, 2015 1:46 p.m. ET

By Greg Robb

Senior economics reporter

The global economic outlook has worsened since the Federal Reserve’s last meeting in July, which will lead the U.S. central bank to hold off on lifting interest rates in September, a panel of former Fed officials agreed Thursday.

The global economic situation has deteriorated and “not by a trivial amount,” said Joseph Gagnon, a former Fed staffer and now senior fellow at the Peterson Institute for International Economics.

Global stock markets are down 5% to 10% since the Fed last met, and the dollar is up 2% on a broad trade-weighted basis, he noted.

“The Fed has cultivated this recovery so carefully, with such enormous effort, for over the last seven years — are you really going to take the risk in this environment with unstable global financial markets and real macroeconomic questions about the global outlook that are not just about volatility?” asked Julia Coronado, chief economist at Graham Capital Management .

The former Fed officials spoke at a panel discussion sponsored by the Brookings Institution.

Jon Faust, a professor of economist at Johns Hopkins University and a former adviser to Chairwoman Janet Yellen, said Fed officials will delay, awaiting the “macrosignal” behind the recent market turmoil.

Donald Kohn, who served at the Fed for 40 years and ended up as its vice chairman, said two things would make him hesitate to hike rates if he were voting at the September meeting: very low inflation and low market expectations of a September move due to recent market volatility.

Kohn said he would want the Fed statement after its September meeting to stress that rates will rise before the end of the year. “That will help build in the expectation of higher rates later this year and put that in the markets, so when I finally did move it wouldn’t be such a surprise,” he said.

Fed officials have argued that the timing of the first rate hike doesn’t matter as much of the path of interest rates. They have stressed that the rate path is likely to be a gradual one.

Coronado took issue with this, saying it was “not entirely true for the markets that translate Fed policy.” A September move would be a “big surprise” and viewed as a “policy mistake,” she said.

Coronado said there were less than 20% chance of a rate hike in September. Gangnon, Kohn and Faust said the odds were higher but still less than 50%.