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World bank advices against US rate hikes

World bank advices against US rate hikes

9 September,, Lagos – Since the conclusion of the Fed quantitative easing program, investors and traders have patiently awaited the commencement of rate hikes as the Fed has spent months priming the markets for rate hikes to come this year. There will now be some serious deliberation in the September 16-17 policy meeting over if when to raise rates. Considering the current condition of the domestic economy against gyrations in global financial markets driven by fears of a China slowdown.

According to the world bank chief economist, Kaushik Basu, the federal reserve risk triggering “panic and turmoil” in emerging markets if it decides to commence the much anticipated US rate hikes at its September meeting.

Immediate turbulence


Kaushik Basu advised that the central bank waits till the global economy looks firmer before commencing as rising uncertainty over growth in China and its impact on the global economy meant a Fed decision to raise its policy rate next week, for the first time since 2006, would have negative consequences, Kaushik Basu told the Financial Times.

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“I don’t think the Fed lift-off itself is going to create a major crisis but it will cause some immediate turbulence,” Mr. Basu said. “It is the compounding effect of the last two weeks of bad news with that  . . . In the middle of this it is going to cause some panic and turmoil.

“The world economy is looking so troubled that if the U.S. goes in for a very quick move in the middle of this I feel it is going to affect countries quite badly,” he said.

World Bank’s forecast is questionable 

Data remains mixed as the the labour market continues to show strength but inflation is less positive. Hence, officials are worried that inflation will be weighed down by the higher dollar and recent falls in commodity prices. With only three meetings of the Federal Open Market Committee left this year, it increasingly feels like a now or never situation.

Mr. Basu further said that the World Bank’s June forecast of 2.8 per cent growth in the global economy was now questionable, due to the slowdown in emerging economies such as China and Brazil.

The International Monetary Fund in its statement on the annual assessment of the economy also prescribed that the U.S. Federal Reserve should hold its rate hikes till the first half of 2016. The primary reason for this advice is that the timeframe gives enough room to monitor signs of a pickup in wages and inflation.

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Disclaimer: The views and opinions expressed in this article are solely those of the author and do not reflect the official policy or position of AtoZ, nor should they be attributed to AtoZMarkets.

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