Brainard cautioned against quickly turning to rate increases as a means to boost economic growth [Xinhua]
US stocks, which had been pulled down in tandem with European and Asian markets, did an about face on Monday afternoon after a major policymaker announced that it would be too early for the Federal Reserve to start thinking of rate hikes.
Fed Governor Lael Brainard, who is also a member of the influential Open Market Committee (FOMC), said she would rather wait for US labor markets to improve further before advocating another rate hike.
Citing the weakening of emerging markets and China’s corrective policies over the past year, Brainard said the case for tightening monetary policy preemptively had become less compelling.
“China is undergoing a challenging transition from a growth model based on investment, exports, and debt-fueled state-owned enterprises to one driven by consumption, services, and dynamic private businesses,” she said.
She expected that growth in the Chinese economy will continue to slow down.
“Disinflation pressure and weak demand from abroad will likely weigh on the U.S. outlook for some time, and fragility in global markets could again pose risks here at home,” she added.
Immediately after her prepared speech was made public, US stocks rebounded. The S&P 500 closed up 1.47 per cent at 2,159.04 while the Dow Jones Industrial average closed up 1.32 per cent at 18,325.07.
The Nasdaq closed up 1.68 per cent at 5,211.89.
Asian stocks
Brainard’s comments appear to come amid a chorus of other Federal Reserve governors who have expressed similar cautionary sentiment and urged not rushing into another interest rate hike.
President of the Federal Reserve Bank of Minneapolis Neel Kashkari earlier had said he saw no urgent reason to justify raising interest rates now.
That’s just what Asian (and emerging) markets wanted to hear. On Monday, they slumped largely due to fears that next week’s meeting of the FOMC would conclude with a decision to raise rates.
That appears unlikely now.
In the first Asian reaction, Tokyo’s Nikkei opened up 0.66 per cent at 16,782.39.
South Korea’s Kospi opened up 0.73 per cent at 2,006.
Shanghai’s benchmark Composite Index opened up 0.10 per cent to 3,025.35.
Australia’s ASX also opened up higher by 0.73 per cent at 5,257.801.
The BRICS Post with inputs from Agencies
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