Could The Yuan Derail The Fed's Rate Hike Plans?
The dollar lost some of its momentum on Wednesday as investors began to worry about whether or not predictions that the Federal Reserve will raise rates in September were accurate. Although the bank's rhetoric and United States economic data have pointed to a September rate hike, many worry that China's latest move to sharply devalue the yuan will deter the U.S. central bank from policy tightening.
They yuan's marked decline has been a cause for concern for manufacturers and exporters across the globe. Some worry that it could hurt U.S. exports as Chinese goods will be much more competitive on the global stage. The currency's drop could also lower the price of Chinese imports, which could in turn put more deflationary pressure on the US.
The yuan's decline has sent global markets into a panic as investors worry about the consequences for multi-national companies. It's possible that unstable sharemarkets in the US could cause Fed Chair Janet Yellen to postpone an interest rate increase for fear that it could further roil markets.
Stay The Course
However, a September rate hike isn't completely out of the question.
On Wednesday, New York Fed President William Dudley remarked that despite the yuan's impact on global markets, the US is still on track for a rate hike in the near future. Dudley cautioned that just days after the People's Bank of China's announcement was too early to judge just how large an impact the currency would have, but that he hopes the U.S. economy will be resilient enough that the Fed will be able to raise rates in the near future.
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