World Bank economist warns Fed against Sept. rate hike

Chief economist warns of triggering 'panic and turmoil' in emerging markets

World Bank economist warns Fed against Sept. rate hike


The Federal Reserve should not raise interest rates in September, World Bank chief economist Kaushik Basu said on Wednesday.

The move would risk triggering "panic and turmoil in emerging markets", Basu warned in an interview with the Financial Times.

“I don’t think the Fed lift-off itself is going to create a major crisis but it will cause some immediate turbulence,” Basu said. “It is the compounding effect of the last two weeks of bad news with that [China devaluation]. In the middle of this, it is going to cause some panic and turmoil."

The economic slowdown in China and its impact on the global economy has created volatile conditions, which an interest rate hike in the U.S. could only exacerbate, Basu said.

Under these conditions, the move would lead to flight of capital from emerging markets, shock, and further depreciation of currencies in developing countries, Basu said.

International Monetary Fund Managing Director Christine Lagarde said in June that the Federal Reserve should delay any interest rate rise until next year.

The Federal Reserve will meet on September 16 and 17 to consider its interest rate decision. There is considerable difference of opinion on the subject among economists and experts. 

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