The turmoil in China has intensified the debate within a divided Federal Reserve over whether the inflation outlook will be strong enough to justify higher interest rates as soon as next month, as global policymakers struggle to get to grips with the clouded outlook for the People’s Republic.
Events in China have shaken faith in the country’s economic management among officials attending the Jackson Hole meetings in Wyoming, hosted by the Kansas City Fed, as well as exposing the uncertainty among western policymakers about the true health of its economy. Nowhere is the debate on the repercussions more immediate and significant than within the US Fed, which faces a pivotal policy meeting next month.
On Saturday, Stanley Fischer, the Fed’s vice-chairman, acknowledged the central bank was looking at China and its impact on other economies “even more closely than usual” but insisted there was still “good reason” that US inflation would head to the central bank’s 2 per cent target.