Investors are hunkered down ahead of the Federal Reserve’s Thursday decision on interest rates as analysts ponder whether the central bank would dare tighten monetary policy in the face of global financial market turmoil.
An improving labor market and a growing economy are seen giving the Fed enough fodder to justify a hike. But many analysts see enough concern over low inflation and, more important, the impact of a rate move on fragile emerging markets as likely to stay the Fed’s hand.
Some fear trouble in emerging markets could reverberate through the financial system to cloud the U.S. economic outlook. The World Bank and the International Monetary Fund have both argued against a Fed rate increase out of concern a move could add to turmoil in emerging-market economies, which has been fueled by a collapse in commodity prices and related concerns about China’s economy and Beijing’s decision last month to devalue its currency.
Meanwhile, U.S. stocks rallied late in Tuesday’s session. The S&P 500 SPX, +1.28% is down around 3.9% for the year and remains more than 7% off its all-time high after recouping some of the territory lost in an August pullback that pushed it into correction territory.