In the past five years, 15 of the OECD’s 36 member countries have raised policy rates, some prematurely, only to cut them again. Last week’s decision by the Federal Reserve to hold the rate steady showed that it has yet to find the confidence to be the 16th. Unlike its peers, though, the Fed is sometimes uniquely conflicted, having to balance both domestic and global factors.

While the domestic argument for an initial policy rate change remains firm, the Fed acknowledged that global developments centred around China and emerging markets, which had led to market and economic turbulence, had swung opinion back again. But August’s tremors were not isolated or random, and force us to ask how long this stand-off can go on, given that China’s travails, for example, are not going to end anytime soon. And what if it did go on? The US economic case for a gradual exit from zero rates has been growing steadily, with decent employment growth, unemployment at just over 5 per cent, and wage and salary formation starting to build slowly. It is true that some labour market indicators, such as the employment-to-population and labour force participation ratios, are at a 35-year low, though some of this is structural.

That said, the so-called U6 unemployment rate (including people marginally attached to the labour force and those working part-time for economic reasons) is at the same level it was when the Fed initiated its last tightening cycle in 2004. The core personal consumption deflator then, moreover, was only 0.3 per cent higher than August’s 1.4 per cent.