Turbulence in financial markets and the shaky global economy are casting doubt over whether the Federal Reserve will take the landmark step of raising its target interest rate when it meets next month.

The question will take center stage when the world’s economic elite gather in the Grand Tetons later this week for a symposium held by the Federal Reserve Bank of Kansas City. Fed Vice Chairman Stanley Fischer is slated to speak on Saturday, and investors are hoping he will provide some clues about how the recent market gyrations may influence the central bank’s decision.

“His presence is intended to both inform and calm the global financial markets,” UBS chief U.S. economist Maury Harris wrote in a research note Tuesday.

For months, top officials at the nation’s central bank have been signaling that they plan to hike the rate for the first time in nearly a decade before the end of the year, assuming the economy performed as expected. But there is mounting evidence that that assumption is not panning out. Several analysts said this week that they now believe the Fed won’t move until the last minute this year — or will wait until 2016.

“US financial market conditions have deteriorated in recent weeks and the pace of deterioration has accelerated in recent days,” Barclays chief U.S. economist Michael Gapen wrote in a research note Monday, changing his prediction from a move in September to March 2016. “We believe the Federal Reserve is unlikely to begin a hiking cycle in this environment for fear that such a move may further destabilize markets.”

The central bank slashed its target rate to zero during the darkest days of the financial crisis and has kept it there ever since in an effort to ramp up the recovery. The ultralow rates are intended to stoke consumer demand and business investment, creating jobs and jump-starting the economy.

It was an aggressive and controversial response to the worst economic downturn since the Great Depression — and, in many ways, it has been a success. The Fed’s easy-money policies have been credited with fostering a more robust job market. Businesses are hiring at a rapid clip, and the unemployment rate, which stands at 5.3 percent, is nearing what many economists believe is its lowest sustainable level.

But broader economic growth remains tepid. The recovery seems to be on solid footing after stalling out over the winter, but it’s not racing back to normal. Inflation has consistently fallen short of the Fed’s 2 percent target, which some officials blame on the weak prospects for growth not only at home but across the world. Retreating from its stimulus efforts now would amount to a tacit admission that the Fed had reached the limit of its ability to spur faster growth.

“Most central banks, I think they feel like they’ve done enough,” J.P. Morgan chief U.S. economist Michael Feroli said.

But the Fed carefully couches all of its statements with caveats, emphasizing that any move will depend on the evolution of economic data. If they point to a speedier recovery, the Fed could move more quickly and more aggressively. If it points to a longer haul, the central bank could wait a little longer.

The problem is that the data is not that definitive. In an op-ed in The Washington Post, Harvard University professor Lawrence H. Summers argued that raising the target rate soon would be a “serious error.”

“At this moment of considerable fragility, the risk is that a rate increase will tip some part of the financial system into crisis with unpredictable and dangerous consequences,” he wrote.

The growing chorus of those who think the Fed will — or, at least, should — wait to hike rates also argue that falling oil prices, weakness in China and the stronger U.S. dollar are keeping a tight lid on inflation. The turmoil in the markets over the past few days has only amplified those dynamics.

In its most recent policy statement, composed in July, the Fed acknowledged the uncertainty in the global outlook but continued to describe the decline in energy and import prices as “transitory.”

Speaking in California on Monday, Atlanta Fed President Dennis Lockhart — an influential voice at the central bank — updated his own assessment. He said China’s move to devalue its currency and falling oil prices are “complicating” the outlook.

But he also highlighted how far the economy has come since the recession and sought to reassure investors that even after the Fed hikes its target rate, it will still remain extraordinarily low. And future increases will happen only gradually.

Zero percent interest rates were a response to a crisis, which has since given way to a bona fide economic recovery, as anemic as it may be. Before the recent global stock market selloff, Lockhart told the Wall Street Journal that he had a “high bar” for not raising the Fed’s target rate in September.

On Monday, despite the more than 1,000-point drop in the Dow Jones industrial average and the ongoing rout in Asian and European markets, Lockhart reiterated that stance:

“I expect the normalization of monetary policy—that is, interest rates—to begin sometime this year,” he said.

But this time, perhaps intentionally, he didn’t specify when.

This article is published in collaboration with Wonkblog. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Ylan Q. Mui is a Reporter from Washington, D.C.

Image: Image: A man looks at a stock quotation board outside a brokerage in Tokyo. REUTERS/Toru Hanai