There are four notable factors that are proving very confusing for Fed officials and, accordingly, led them to keep their policy options wide open — that is, neither commit to a rate hike or take it off the table for next month:
First, the signals from the U.S. economy are at odds with those from international markets: While far from unambiguous, especially given the weakness in inflation and wages, U.S. economic readings tend to support a Fed rate hike as early as next month. But this isn’t the case for the international data. Whether it’s Europe and Japan or emerging markets, the numbers there clearly point to a weakening global economy and, accordingly, would suggest more policy caution.
Second, the fragility of financial markets: The last few weeks have seen notable weakness in a growing number of areas. What started out as relatively localized disruptions in the oil market and emerging-market currencies have spread — first placing pressure on corporate bonds and more recently on equities.