"Less compelling" reasons for US Fed September rate cut

Asian stock tickers are green again and are illustrating reassuring gains. At almost 4% the Dow Jones recorded the highest intraday rise in four years. However volatilities remain elevated and the roller coaster ride can resume at any moment. 

The most important question for the market remains unchanged though, what will the Fed's reaction to the recent turbulence on the stock markets be? William Dudley, President of the NY Fed and a known dove yesterday considered reasons for a rate step in September to be "less compelling" but is still hoping that interest rates can be hiked this year. 

Of course this view does not really help the market as it had worked that much out itself following the collapse of stock markets around the globe. Hope now rest on some clearer words from Wyoming. In there, Jackson Lake Lodge central bankers from all over the world will be meeting away from any financial markets in a rustic environment and will discuss the topic of inflation for three days from today. 

Unfortunately Ms Yellen has already got other plans for the weekend so that Vice chairman Stanley Fischer will be speaking on Saturday. Markets are hoping he finally will give a clear indication as to what will happen next. Market reasoning is, If the Fed really was aiming for September it would have to begin communicating that now. 

And two and a half weeks before the Fed meeting there is hardly any better opportunity. In particular as inflation is the central topic. After all inflation expectations have collapsed again recently and make rate hikes less likely, even though economic data is positive. However, Stanley Fischer can always be relied upon for a surprise, he was already know for that during his times with Bank of Israel.

"A reference to a rate step in September would come as a major surprise and would allow the USD to appreciate on a broad basis.  In view of the uncertainties, the financial markets and the USD are likely to remain turbulent", says Commerzbank.