New | Fed’s Dudley says market turmoil makes September rate hike ‘less compelling’

A Federal Reserve interest rate hike next month seems less appropriate given the threat posed to the US economy by recent market turmoil, an influential Fed official said on Wednesday in the clearest sign that fears of a Chinese slowdown are influencing US monetary policy.

New York Fed President William Dudley said the prospect of a September rate hike "seems less compelling" than it was only weeks ago. However he warned about overreacting to "short-term" market moves, and left the door ajar to raising rates when the US central bank holds a policy meeting on September 16-17.

Dudley’s comments, which briefly clipped the dollar and helped lift bonds and stocks, come a day before many of the world’s top central bankers gather at an annual conference in Jackson Hole, Wyoming, to which investors will look for clues on how the turmoil may be rattling policy plans.

The comments were unprompted and made at a press briefing on the regional economy, suggesting they were a deliberate message from the broader Federal Reserve after a sharp two-day selloff in Asian, European and US stocks.

The volatile selloff was brought on by weak Chinese economic data and concerns that authorities there are losing control of markets. Dudley said it threatens to crimp global growth and create financial conditions unsuitable for the Fed to soon hike rates for the first time in nearly a decade.

"At this moment, the decision to begin the normalization process at the September FOMC meeting seems less compelling to me than it was a few weeks ago," Dudley, a close ally of Fed Chair Janet Yellen, said of the policy-making Federal Open Market Committee.