NEW YORK (TheStreet) -- It has been nine years since the Fed last raised its interest rates, but it could be longer yet before we get a rate hike. Besides a below-target inflation rate and a disappointing wage growth, the Fed may now have an additional concern: the worries highlighted in the Bank of International Settlements Quarterly Report.
The world's oldest international financial organisation, Bank of International Settlements (BIS), released its Quarterly Review on September 13 and confirmed how emerging markets remain the central focus in the current global economy. The report comes at a crucial time when the U.S. central bank's policy-setting committee will meet to decide about the direction of interest rates on September 16 and 17. The BIS report reflects worries that range from the weakening of China's economy to rising dollar debt levels of emerging markets. In addition to a strong dollar, all these could collectively mean big trouble for the global economy.
BIS believes that market turmoil and macroeconomic factors have driven investors to gauge back their hopes of near-term rate hikes. BIS had previously warned central banks that they were too much dependent on monetary policies and this was due to the absence of comprehensive and long-term structural reforms. The reports said that the markets were being driven by diverging monetary policies by central banks. While Bank of Japan and the European Central Bank kept their interest rates close to zero and also continued asset purchases program (to fuel the economy and maintain target inflation growth), the Fed and Bank of England, on the other hand, prepared market participants for an increase in interest rates.
According to the report, "Although the timing of the Federal Reserve's first move has become more uncertain, interest rate differentials between the United States and many other countries have remained wide, with important consequences for foreign exchange markets." The head of the BIS Monetary and Economic Department Claudio Borio said that the interest rates had been kept "extraordinarily low for exceptionally long" and financial markets have "worryingly come to depend on central banks' every word and deed." In its report, BIS warned investors not to expect the central banks to solve deep-rooted problems. The BIS chief economist pointed out, "It is unrealistic and dangerous to expect that monetary policy can cure all the global economy's ills."