Speculations of the Federal Reserve increasing interest rates, the first hike in about a decade, has been lingering the global economy for quite some time now. Reports have it that a possible rate hike is likely to transpire in September.
However, several problems are currently stirring the stability of the global market. With China’s sudden move to devalue its currency sparking possibilities for a currency war, Greece’s serious and much disturbing financial crisis affecting the Eurozone, Japan’s slowly failing economy due to decline in exports and oil prices declining sharply over the past few weeks, I don’t think it is healthy for the entire economy if the US is to add up to these surfacing predicaments.
Wall Street, for example, is going through a bumpy road lately. Brought by the devaluation of the yuan, a number of markets have been experiencing great turmoil recently. The Dow Jones Industrial declined 3.10 percent in last week’s close while the S&P 500 plunged 3.20 percent, reaching a 7.50 percent fall in three months. Moreover, worldwide stocks tumbled 2.60 percent in one month. Bonds also weakened by 2.50 percent while return on stocks have only been recorded at 2.30 percent.
As prices of commodities and US stocks continue to drop significantly, the US central bank shall consider holding off its rate hike at least until December and allow circumstances to cool down. Higher interest rates will severely hurt the stock markets, so it is just logical to give them enough time to recover.
Needless to say, it seems like the Fed is aware of the jittery effects of a probable rate hike. However, investors and traders must not be complacent. They must still keep an eye on how the central bank will move in the following days, as Fed officials have said that the final decision will largely depend on further economic data.