[WASHINGTON] The United States weighs raising rates for the first time in nine years Thursday, a momentous decision that has transfixed world markets at a time of slowing Chinese growth and crises in other emerging markets.
Analysts were unsure whether the US Federal Reserve would raise rates or hold steady when it announces the decision at 1800 GMT after a two-day meeting.
But many said the risks of global turbulence and the possibility of a slowdown in US growth might persuade Fed policymakers to hold off from raising rates for a few more months.
The decision could have a significant impact on world stock and foreign exchange markets.
Beyond the markets, though, it could buffet emerging markets, which have already suffered a flight of investor capital on the mere prospect of a US tightening, which would make US-based investments more attractive.
"It's hard to recall an event given so much attention from market players, the implications are far reaching and history provides absolutely no guide," said Chris Weston, chief markets strategist in Melbourne at IG Markets Ltd.
An upbeat mood across global markets has seen shares rise for most of this week, with US and European dealers enjoying two days of rallies.
In New York the Dow, S&P 500 and Nasdaq all enjoyed healthy gains, while London and Paris were more than one per cent higher.
The decision, though, has been preceded by calls for the US central bank to move gingerly.
The World Bank warned developing economies this week to prepare for more capital and currency market turmoil.
Regardless of whether the Fed begins raising interest rates at this week's meeting or later, Bank economists said the shift towards higher rates could pose huge challenges, coming as global economic growth slows and sinking commodity prices hurt a number of developing economies.
The OECD, too, urged the Fed to move slowly and make its policy plans clear, whatever it decides.
Most analysts see the Fed again putting off the long-awaited increase to the benchmark federal funds rate, which has been locked at 0-0.25 per cent since the 2008 financial crisis, giving the world a massive supply of cheap dollars.
While US growth has been strong, still-weak inflation and the recent China-driven turmoil in global markets "most likely mean that the FOMC will leave rates unchanged at this week's meeting," said Harm Bandholz of UniCredit.
That was underscored by a downward turn in the US consumer price index on Wednesday, confounding Fed hopes of seeing a pickup in inflation.
Jim O'Sullivan, chief economist at High Frequency Economics, said he "expect officials to be risk-averse and to hold off on tightening for now" because of the challenges to world economic growth.
The Fed has not raised rates in more than nine years, and what would probably amount to an increase of 0.25 percentage point would represent a momentous break with the extraordinary crisis stance it has adopted since the 2008-2009 recession.
It would begin what is expected to be a slow series of rate hikes towards a "normal" monetary policy stance of around three per cent in the next two years.
After a lengthy buildup to Thursday's decision, analysts say what is more important is how Fed chair Janet Yellen explains it in a post-decision press conference - specifically, what she says about US growth, global risks and the path of rate hikes in the coming months and year.
"Uncertainty about this month's FOMC meeting is about to end, but don't expect uncertainty about Fed policy to disappear," Mr O'Sullivan said.
On Wednesday, the Organisation for Economic Cooperation and Development, the policy club of 34 advanced economies, said the strength of the US economy "warrants an upward interest rate path."
"The timing of the first rate hike is of secondary importance compared to the pace of increase. Clear communication of that pace will help to minimize financial market volatility."