The Federal Reserve will probably talk about raising interest rates in October and actually do it in December, said Scott Mather, co-manager of Pacific Investment Managment Co.’s biggest fund.
“September is a very small probability” to raise rates after the market turmoil, Mather said in a phone interview on Wednesday. “They’ll remind the market that they have meetings in between September and December, so there’s a small probability they could do something there. Otherwise it’s December.”
Traders have bet for months that the Fed will raise rates in September or December. October is the only other meeting on the 2015 calendar, but hadn’t been part of the conversation until now because it isn’t accompanied by a press conference.
Financial markets have been convulsed by concerns over weaker Chinese growth, with about $8 trillion erased from the value of global equities since the country’s surprise devaluation of the yuan on Aug. 11.
“They really, really wanted to move in September,” Mather said. “They just probably feel like they can’t now, because the world is a little too unsettled and too volatile. They don’t want to be seen contributing to it.”
While the Fed knows it should normalize policy rates “for fundamental reasons,” and the impact on the U.S. economy would be muted, central bankers are likely “worried about spillover for the global economy” as China and emerging economies struggle with the impact of suddenly-lower commodity prices and a stronger U.S. dollar, he said.
Investors have reduced the probability of a move next month, with trading in federal funds futures on Wednesday implying a 24 percent probability they will act, compared with 48 percent on Aug. 18. Fed Chair Janet Yellen has said the central bank is likely to raise rates this year if the economy grows as expected.
The $101 billion Pimco Total Return Fund, run by Mather, Mark Kiesel and Mihir Worah, has gained 0.8 percent this year, outperforming 70 percent of peers, according to data compiled by Bloomberg.