Though it may not get as much media attention as the Federal Reserve, the Bank for International Settlements (BIS) has a privileged vantage point when it comes to the global economy.
Considered the “bank of central banks,” the BIS fosters international monetary and financial cooperation and acts as the world’s top financial watchdog.
In 2008, the BIS was the only international organization that spoke up about just how unstable the financial system had become. And now, it’s issuing another warning just before the Federal Open Market Committee (FOMC) meeting on September 16 and 17.
Specifically, the BIS has warned that a Fed rate hike could have significant effects on the global economy, particularly in emerging markets. According to the BIS report, much of the global financial system remains anchored to U.S. borrowing rates, and a rate hike at home tends to translate to higher rates in other economies, as well.
Given the enormous amount of debt that emerging markets have accumulated, even a small rate hike has the potential to cause large shockwaves.
For that reason, other financial institutions, such as the International Monetary Fund (IMF) and the World Bank, have asked the Fed to delay its first rate hike since 2006.
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Yet, the BIS, in spite of its warning about rate hike fallout, believes that a rate hike might be necessary – no matter the potential fallout.
“We are not seeing isolated tremors, but the release of pressure that has gradually accumulated over the years along major fault lines,” said Claudio Borio, Chief Economist at the BIS.
At this point, the only way out is to face the day of reckoning and “take your bitter medicine,” as The Telegraph put it. That means raising rates even if conditions may not be ideal. After all, the precise conditions the Fed is looking for may never come, and in the meantime, the global debt burden will likely only grow.
So, with the FOMC’s decision now just hours away, we’re curious:
[wsdpoll question=”Do you think the Federal Reserve will raise short-term interest rates on Thursday?” options=”Yes, the Fed will hike rates this week.; Yes, the Fed will hike rates this week and once more before the end of the year.; No way! The Fed won’t raise rates at all in 2015.” result_file_name=”fed_poll_result” result_url=”http://pro1.wallstreetdaily.com/410912/”]