International officials and bankers have voiced that they are tired of the hesitancy seen within the Federal Reserve when discussing interest rate increases.
“If you delay something that you were planning to do, then you leave the impression that your compass is different than what you led markets to believe,” Jacob Frenkel, chairman of J.P. Morgan Chase International and former head of the Bank of Israel, said in an interview with the Wall Street Journal. "Market drama is increased by delay," he added.
Discussion at the Fed's annual retreat this week consisted of officials and bankers from all over the world urging the Fed to proceed with the rate hike and "get on with it already," according to an article featured on the Wall Street Journal.
"Market drama is increased by delay."
Policymakers within the Fed are questioning economic growth due to volatile stock prices, the WSJ reported. In addition to the stock prices policymakers are also concerned about falling commodities, a stronger dollar, and China's economic crisis.
More doubt surrounding the rate increase was shown Monday as the performance of the stock market brought about some anxiety among big U.S. businesses and other stakeholders, while the Dow Jones dropped by 1,000 points and spent the rest of the day fighting its way back toward the break-even point.
"The real effect—if any—from the stock market volatility of the last few days won’t occur for a while," said Sean Becketti, Chief Economist at Freddie Mac. "It will take time for investors to analyze the depth of the economic weakness in China, the effectiveness of the Chinese government’s responses, and the ultimate impact on various sectors of the U.S. economy. The interesting near-term impact is on the Fed’s September decision to raise rates or not. Market sentiment was split roughly even before this event. Today it’s tilting toward no action in September."
The U.S. central bank shouldn't change its economic agenda as a result of the market meltdown in China, St. Louis Fed President James Bullard said Friday. America's economy and financial markets have emerged relatively unscathed from the recent crisis, so the central bank's Federal Open Market Committee should proceed as planned with raising interest rates next month, he said, as Bloomberg reported.
"The key question for the committee is, how much would you want to change the outlook based on the volatility that we’ve seen over the last 10 days, and I think the answer to that is going to be: not very much,” Bullard said.
A poll conducted earlier this week by Reuters found that as the housing market strengthens, many economists believe that it could withstand an interest rate hike by the Federal Reserve this year, pending stabilization among home prices.
According to the Reuters poll, 20 of the 22 economists surveyed said that the market could withstand the Fed's anticipated rate hike, indicating that employment and housing demand from millennials as the major contributors to the markets stability.
However, the Fed still danced around the looming rate hike in their last Federal Open Market Committee (FOMC) meeting earlier this month. The minutes from the July 28-29, 2015 meeting confirmed that the economy is still unprepared for a hike in the federal funds rate, but the increase is likely on its way.
In the Committee members' discussion on economic conditions and monetary policy most participants "judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point," according to the FOMC minutes.
Fed officials determined that economic activity is expanding moderately, the housing sector has shown additional improvement, and job gains have been solid with declining unemployment, but the federal funds rate will remain the same at a target range of 0 to 1/4 percent.
Fed Chair Janet Yellen did allude to the rate increase possibly occurring before the end of the year in a Senate Banking Committee hearing also held in mid-July.
"If the economy evolves as we expect, economic conditions likely would make it appropriate at some point this year to raise the federal funds rate target, thereby beginning to normalize the stance of monetary policy," Yellen said. "Indeed, most participants in June projected that an increase in the federal funds target range would likely become appropriate before year-end. But let me emphasize again that these are projections based on the anticipated path of the economy, not statements of intent to raise the rates at any particular time."