The recently released minutes of the July 28-29 Federal Open Market Committee (FOMC) meeting shows that while many members of the Federal Reserve want to raise interest rates, it’s not clear when it will happen. Members of the Fed are generally satisfied with improvements in the economy, but there are still a number of reasons to question a September rate hike, especially since there’s no way to know what factors the Fed will rely on most to make a final decision.
Here are five reasons they may hold off on a rate hike in September:
1. Low inflation. The economy is close to full employment but inflation remains subdued. As a strong dollar drives import prices lower and oil prices continue to slide, the Fed’s 2 percent inflation target gets harder to hit.
2. China. The turmoil in China’s financial markets and worries about slowing growth spilling into the U.S. economy are probably making the Fed to think twice about raising rates. The Fed meeting occurred a few weeks before China devalued the yuan, so it’s still not clear how the Fed is treating the devaluation.
3. Government shutdown. A federal government shutdown is a real possibility this fall, especially since Republicans have threatened to use any tactic available to cut funding for Planned Parenthood. If members see this as a plausible risk, the Fed might resist raising rates -- a government shutdown was the main reason the Fed held off on easing its bond-buying program during the fall 2013 government shutdown.
4. August employment report. The number of Americans filing new applications for unemployment benefits increased for the fourth straight week, according to data released by the Labor Department Thursday. Economists had forecast that claims would fall to 272,000, but initial claims for state unemployment benefits increased 4,000 to a seasonally adjusted 277,000. On the other hand, it was the 21st straight week that the four-week average of claims was below the 300,000 threshold, a sign typically associated with a strengthening labor market.
5. Strong dollar. The stronger U.S. dollar is starting to weaken U.S. manufacturing and exports, as falling foreign currencies entice consumers to buy cheaper goods from countries other than the U.S. For example, the August 2015 Empire State Manufacturing Survey revealed that new orders in New York fell 12 points and shipments plummeted 22 points. The general business conditions index in New York is down 19 points to -14.9, the lowest level since 2009.