Though the Fed has now decided to keep its policy rate unchanged, it also stated that a rate hike is still on the table for 2015. The concern is that countries that are dependent on foreign financing could be hit by sudden outflows of international capital, or that currency depreciation following the Fed hike could raise debt servicing costs for countries and businesses.

A Good Rate Hike for Europe

Ready for a US Rate Hike?

The Fed of course understands that pretty much everyone dislikes interest rate hikes and almost always likes rate cuts. Any central banker will tell you that he or she gets 99 requests for interest rate cuts for every request for a hike, almost regardless of the situation.

Why the Fed Should Postpone Rate Hikes

The reason we should fear this possibility is that the world s economic equilibrium is both fragile and unstable and could wobble dangerously without determined and coordinated policy intervention. A Fed rate hike might not tip it over, but some other seemingly innocuous event could.

The Fed should regard lower commodity prices, reduced inflationary pressures, changes in the labor market, and further disruptive technological shifts as sufficiently convincing arguments to postpone a rate hike. Including the risk of excessive volatility in the global financial system tips the balance even further.

Yet widespread concerns persist. The International Monetary Fund for example, has argued that any rate hike by the Fed would need an effective monetary policy communication strategy a polite way of saying that any monetary tightening in the US and other advanced economies would be premature.

Expectations of a rate hike have restricted flows to emerging markets ever since 2013, when the Fed triggered what came to be called the taper tantrum by announcing that it was likely to reduce its bond buying program. The resulting alarm roiled US financial markets and spilled over internationally.

Another reason why the Fed should postpone a rate hike is that financial turmoil in emerging markets, particularly China, could have a substantial impact on the global economy, with some clear implications for the US economy. In particular, lower energy and commodity prices are likely to dampen inflationary pressure.

At the ECB press conference in early July, Trichet signaled at least one more rate hike either in September or October. Some Council members are known to support two more rate hikes before year end.

In an anonymous leak to a major financial news service, an ECB official falsely maintained that unanimity was needed for a rate hike, implying a single dove could stop it. Infuriated by what he considered to be guerilla tactics, Trichet effectively silenced the mischief makers by the bold stroke of pre announcing the rate hike two weeks before the meeting.

First, the divergence of monetary policies between the US and other major economies is already universally understood and expected. Thus, the interest rate differential, like the US rate hike itself, should already be priced into currency values.

Indeed, even the markets were fooled, giving the ECB a good grade for its unremarkable rate hike. Inflationary expectations, as measured by the rates on certain market instruments, actually fell after the hike, indicating increased confidence that the ECB will keep a lid on price pressures.

Even the doves might support a rate hike in September to counter act the charge that they are being bullied out of a September hike by Sarkozy. There is no doubt that Sarkozy s attacks on the ECB are having a counter productive effect in this regard.

Looking at the monetary tightening that began in February 1994 and June 2004, the dollar strengthened substantially in both cases before the first rate hike, but then weakened by around 8 (as gauged by the Fed s dollar index) in the subsequent six months. Over the next 2 3 years, the dollar index remained consistently below its level on the day of the first rate hike.

However, late last year, Everbright Bank and some others began offering fixed rate mortgages. Take up has been slow, but the April 2006 surprise hike in bank rates may help to sow greater public awareness of interest rate risk.

Japan s Tax Hike Test

But such an insignificant rate hike will do little to relieve long term pressures, because investors will expect more rate hikes and move money into China, increasing upward pressure on the yuan s exchange rate. Indeed, the logic is self fulfilling as more foreign currency flows into the market, the economy will continue to overheat, necessitating further interest rate hikes.

While the Fed s rate hike, prudently accompanied by an emphasis on small and gradual steps, may not turn out to be a trigger, the concerns about the knock on effects are legitimate. It would be unwise to assume that, with the initial hike now behind us, systemic risk has somehow disappeared.

We should cancel the hike.

The day after Black Monday, Minister of Economy Alexey Ulyukaev said that the CBR should have increased interest rates sooner. This immediately raised suspicion that the CBR delayed the interest rate hike in order to complete the deal at the lower rate.

In an interview with Frankfurter Allgemeine Zeitung, for example, Bundesbank president Axel Weber made it clear that future rate hikes were very much on the table. Others spoke out as well, and the futures markets quickly predicted another 25 basis point rate hike in March.

Duisenberg recognized this linkage and held firm. The ECB s paltry rate hike in December, together with the supine promise of no plans for further monetary tightening, demonstrates that Trichet is no Duisenberg.

Fed officials generally believe that tax reform is a factor supporting this modest strengthening of the economic outlook. The Fed predicts that the economy will increase by 2.5 in 2018 and the interest rate will be raised three times.

By the time the FOMC met on September 16, the unemployment rate had fallen to 5.1 , the level that the Fed had earlier identified as full employment. Although there are still people who cannot find full time jobs, driving the unemployment rate below 5.1 would, according to the Fed, eventually lead to unwanted increases in inflation.

You hike around, you see something like this.

Fed Up with the Fed

It has been more than successful at the second, partly because it has been less than successful at the first. So why will policymakers be considering an interest rate hike at the Fed s September meeting?

TOKYO Last April, Japan s government implemented a long planned consumption tax hike, from 5 to 8 , the first in a two step increase that is expected to bring the rate to 10 by 2015. The hike a key feature of Abenomics, Prime Minister Shinzo Abe s three pronged strategy to revive Japan s economy signals the government s long term commitment to fiscal consolidation.

The situation now has diverged from the traditional scenario in which the Fed controlled the banks use of reserves by adjusting the federal funds rate (the rate at which banks lend their reserves to one another). The principle difference is that the Fed will now have to pay the interest on the nearly 2.5 trillion of excess reserves that it holds.

It's kind of out past Mars. It's a hike.

You can hike for days and not encounter anybody.

And it is failing today, leading the Fed consistently to overestimate underlying inflation. Indeed, with oil prices having plunged by 50 over the past year, the Fed stubbornly maintains that faster price growth and the precious inflation rate of 2 is just around the corner.

Reflecting the fear that the Fed s current policy of sustained low interest rates will lead to higher inflation, the law would require the Fed to adopt a formal procedure for setting its key short term interest rate, the federal funds rate. More specifically, the law suggests a specific interest rate rule (the Reference Policy Rule) while giving the Fed the opportunity to adopt a different rule if it explains to Congress why it prefers the alternative.

Jeffrey Frankel, for example, recommends a pre announced plan to increase the tax rate by, say, one percentage point annually for five years. But Japanese policymakers, media, and academics largely continue to favor a sudden and substantial hike.

BOLOGNA After a 30 year hiatus, international coordination of macroeconomic policy seems to be back on policymakers agendas. The reason is understandable growth remains anemic in most countries, and many fear the US Federal Reserve s impending interest rate hike.

Indeed, I would not be surprised by a continued rise in the inflation rate in 2015. In that case, the Fed is likely to raise the federal funds rate more rapidly and to a higher year end level than its recent statements imply.

That, at any rate, is the theory no one knows how it would work in practice. How high would the Fed or the ECB, for that matter have to raise the interest rate on deposits to prevent excessive growth in bank lending?

This threat took a heavy toll on the ECB s credibility, since an interest rate hike in the midst of the most serious financial crisis in decades was obviously absurd. No one believed it, and the ECB not only withdrew its clumsy threat the next month, but it adopted a policy of interest rate neutrality.

Though US monetary policy undoubtedly exerts significant influence on global markets, fears surrounding the direction of US interest rates may be overdone. Though the Fed may no longer be promising patience, the current financial environment implies that investors should not, for the time being, anticipate a major hike.

But even he might find it daunting to reconcile the conflicting demands of the ECB to accelerate the interest rate normalization process and those of the French political establishment to maintain the status quo. But the recent good economic numbers coming out of France should make an October rate hike easier for French politicians to accept.

Furthermore, the Fed has now exited quantitative easing and is showing a willingness to start raising policy rates sooner than markets expected. If the Fed does not postpone rate increases until the global economic weather clears, it risks an aborted takeoff the fate of many economies in the last few years.

Businesses will want to borrow, and banks will want to expand their lending. Under these conditions, the Fed will want to raise the interest rate to prevent an acceleration of inflation.

On December 28, Kweichow Moutai announced that upon study, it has decided to appropriately hike the price of Moutai liquor products in 2018 on average, the magnitude of the hike would be approximately 18 .