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Update: September rate hike now 'less compelling', says Fed's Dudley

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A top Federal Reserve official said Wednesday that there was less justification now for raising interest rates in September than just a few months ago.

[NEW YORK] A top Federal Reserve official said Wednesday that the economic turmoil in China has eroded the argument for raising interest rates in September.

The need to begin normalizing monetary policy next month “seems less compelling to me than just a few weeks ago,” said William Dudley, head of the Fed’s New York branch and a voting member of the rate-setting Federal Open Market Committee.

“The slowdown in China could lead... to a slower global growth rate and less demand for the US economy,” he said.

The crash of China’s stock markets and the limited impact of Beijing’s efforts to calm the situation have raised fears of a greater-than-expected slowdown in the world’s second-largest economy that could drag down growth globally.

Some economists have called on the Fed to not go through with a long-anticipated increase in the federal funds rate at its September FOMC meeting, given the global market turmoil.

It would be the first interest rate increase in nine years, and would lift the fed funds rate from the zero level, where it has sat since the crisis of 2008.