First published: ft.com, 21/09/2015
Yellen must tell markets about the difficult trade-offs it faces
In the past five years, 15 of the OECD’s 36 member countries have raised policy rates, some prematurely, only to cut them again. Last week’s decision by the Federal Reserve to hold the policy rate steady showed that it has yet to find the confidence to be the 16th. Unlike its peers, though, the Fed is sometimes uniquely conflicted, having to balance both domestic and global factors.
While the domestic argument for an initial policy rate change remains firm, the Fed acknowledged that global developments centred around China and emerging markets, which had led to market and economic turbulence, had swung opinion back again. But August’s tremors were not isolated or random, and force us to ask how long this stand-off can go on, given that China’s travails, for example, are not going to end any time soon. And what if it did go on?…Read more: