DEUTSCHE BANK: We found 7 compelling reasons why the Fed won't do anything this month

Joe LaVorgnaCNBCJoe LaVorgna

The list of economists betting on a rate hike this month keeps getting smaller.

Recently, Larry Summers, The World Bank, the IMF, and even the New York Times editorial board have advised the Fed to keep rates at a nine-year low when it meets next week.

In a note Wednesday, Deutsche Bank’s Joe LaVorgna added his voice to the argument.

These are his seven brief points on why the Fed won’t do anything at its meeting next week:

  • Markets are volatile. The S&P 500 fell 11% in six days during August, double the amount it’s historically dropped before a tightening cycle begins.
  • The dollar is surging, as measured by the Fed’s trade-weighted index. This may put more pressure on net exports and keep the lid on inflation.
  • Markets aren’t expecting a hike this month, and the Fed won’t want to surprise everyone. On Tuesday, Fed fund futures were reflecting a 30% chance the Fed would move, down from 54% about a month ago.
  • FOMC members including Richard Dudley and John Williams have recently suggested that the economy is showing the Fed an amber light, not green.
  • The Fed still has its October and December meetings to observe any effects of the recent market plunge, and see if volatility settles down.
  • The Fed’s ‘dot plot’ showed that it anticipates raising rates by 25 basis points either once or twice this year. The leaked staff projections also reflected this. And so the Fed won’t lose credibility with markets by waiting.
  • Inflation has been running below the Fed’s target for three years.

So there you go.

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