Federal Reserve Might Not Raise Interest Rates in September Due to China's Slowing Economy

China is the biggest holder of reserve assets in the world, holding a combination of bonds, currencies and commodities like gold. It held $1,271 billion in U.S. Treasurys at the end of June 2015, according to data from the Treasury Department. Societe Generale analysts estimate that the People's Bank of China (PBoC) has sold at least $106 billion of U.S. reserve assets since announcing its currency devaluation on August 11, 2015. China had cut its holdings of U.S. Treasurys to raise the U.S. dollars needed to support the yuan. [Source]

China has officially ruined everything for everybody [Excerpt]

August 27, 2015

Quartz - We know China is big. By some measures, China is now a bigger chunk of the global economy than the US.

But it’s also slowing.

This slowdown matters. A lot. China is the world’s largest consumer of—in no particular order—copper, steel, iron ore, automobiles, aluminum, mobile phones, nickel, rice, tobacco, meat, Swiss watches, television, rubber, potash, energy, robots, beer, machine tools, red wine, flavored milk, rare earths, wheat, coal, as well as plenty of other raw materials and products.

And because of China’s seemingly endless demand for such sundries, companies—and entire countries—have built their business and economic strategies around catering to the People’s Republic.

That means China’s problems are the world’s problems.

The US economy is not built around supply exports to China. So, in that sense, the country enjoys a bit more insulation from China than many others.

But the US does import a lot of stuff from China, and one of the most important imports—at least lately—has been deflation.

Because of slack conditions in the Chinese industrial sector, producer prices—prices of goods as they leave the factory gate—have been tumbling.

That, along with the devaluation of the Chinese currency, should put further downward pressure on US import prices.

Ostensibly that’s a good thing for consumers.

On the other hand, that deflationary pressure will make it even more difficult for the Federal Reserve to achieve its goal of getting inflation up to a level where it feels like it can raise interest rates. Inflation remains abnormally low, largely due to low oil prices. But the Chinese situation won’t help matters either.

Markets are now much less sure that the Fed will finally start raising interest rates for the first time in roughly nine years in September.