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Dow down amid fears of interest-rate hike

Monday, September 14, 2015 16:20
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(Before It's News)

Dow down amid fears of interest-rate hikeSelloff in Chinese market resumed overnight


NEW YORK – The Dow Jones Industrial Average closed down Monday as the selloff in the Chinese stock market resumed amid investors feared a hike in interest rates this week by the Federal Reserve. The Dow was off more than 62 points, finishing at 16,370.96.

A rise in interest rates could send trigger a global debt crisis as public and private debt levels reach extreme levels across all major regions of the global economy, warned Claudio Borio, the chief economist for the Bank for International Settlements in Geneva, reported London Telegraph economic reporter Ambrose Evans-Pritchard.
When the Federal Open Market Meeting, FOMC, concludes this Thursday, investors will finally have the answer to the much pondered question of whether or not the Federal Reserve will resume raising interest rates.
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Fed Chairman Janet Yellen has halted the Fed’s policy of Quantitative Easing, or QE, through which it bought trillions of dollars of U.S. Treasury debt to keep interest rates at or near zero.
Economist John Williams, editor of the widely followed financial blog Shadow Stats, points out in the Sept. 1 edition of his subscription newsletter that a rate increase could occur yet this year.
“In a close call, the FOMC will likely boost rates, irrespective of the weakening economy,” Williams predicts. “If pressures to delay the rate hike prevail, markets likely face troubling questions as to what really is frightening the Fed.”
Williams cautions that if the Fed does not increase rates, the decision may stem from more than a concern that it would impact the stock market.
“If, however, the Fed does not move, such will not be due to economic weakness,” Williams wrote. “It will be because the Fed still deems the post-2008 financial system to be too fragile and vulnerable, unstable.”
That precisely is the dilemma the Fed faces, Williams explains. A decision to raise rates may depress the stock market, because investors will anticipate higher rates will slow economic growth. But a decision not to raise rates could also depress the stock market, because the Fed will have signaled to investors a concern that a still-weak economy continues to need interest rates at zero to boost lagging economic growth.
“Given a day or two following the FOMC meeting, conceivably, market reaction could be even more-violently negative than anticipated with a rate hike, if the central bank does not act,” Williams stressed.
China’s stock market resumes slide
Investors worldwide fear the miracle of Chinese economic growth may have come to an end.
On Monday, the Shanghai stock market posted its biggest fall in three weeks, closing 2.7 percent down, after key economic indicators, including factory output data, reported weak.
Reuters reported Chinese government authorities, desperate to use every available government mechanism to stimulate a lagging economy, have seized up to 1 trillion yuan ($157 billion) from local governments that failed to use their budget allocations.
WND reported Aug. 26 that in an unprecedented move to prop up the yuan, China dumped more than $100 billion in U.S. Treasuries during two weeks in August, approximately 8 percent of the estimated $1.27 trillion in foreign-reserve currency it held at end of June.

Copyright 2015 WND


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