Fed: Chinese stock market slump reflects global slowdown

by Ephraim Vecina15 Jan 2016
Along with oil price crashes and more cautious trade between economic powers, the recent Chinese stock market downturn predicts a global slowdown, according to fed officials.
Federal Reserve Bank of Boston president Eric Rosengren said that justifying a second interest rate hike after December’s quarter point rate raise would be difficult as the central bank is still trying to look for evidence of global and national growth being “at or above potential”.
Observers anticipate four further hikes in 2016 after the December increase, but continuous drops in global oil prices and a significantly weakened yuan have thrown a monkey wrench in the Fed’s plans.
Atlanta Fed chief Dennis Lockhart said that the best currently available data – now marred by the Chinese downturn – is not sufficient to implement the succeeding hikes. Lockhart noted that they would need until April at the very least to make a fairer judgment on the matter.
While their projections vary regarding the severity of the downturn’s effect on U.S. equity markets, Fed officials agreed that the slowdown in the Chinese stock market should give pause to American policymakers and market players.
“It's something that's got to make you nervous,” Chicago Fed president Charles Evans told Reuters, adding that the Chinese drag has made inflation expectations more uncertain compared to a year ago.
Previously, U.S. stocks went tumbling down after a mass sell-off in Chinese markets, which prompted the Fed to defer an interest rate hike scheduled last September.
Fed officials are scheduled to gather for their first policy meeting this year on January 26 to 27.


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