Risks Grow for Slow but Steady U.S. Expansion

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from The Wall Street Journal,

Market turmoil and China’s troubles threaten to undermine outlook for world’s largest economy.

The U.S. has been the tortoise in a global race for economic growth, plodding out a slow but steady expansion while China signals exhaustion and the rest of the world wobbles. Now, market turmoil and China’s troubles threaten to undermine the already unspectacular U.S. outlook.

Few economists see a U.S. recession. In fact, some recent developments, including lower oil prices, will help U.S. consumers and businesses.

But an uneven global growth outlook is pushing the value of the dollar higher, making U.S. goods more expensive overseas and harder to export. That could restrain the U.S. economy in the months ahead. Stock-market declines could further hurt U.S. consumer sentiment and spending, if the drops are sustained, and they make businesses even less willing to invest.

Federal Reserve officials now need to decide if they should alter their planned course on interest rates. Officials have been signaling for months that at least one increase in short-term rates is likely this year, possibly as soon as September.

Now, Fed officials might rethink the timing and pace of their plans, thanks to an uncertain growth and inflation outlook. In futures markets, investors put the odds of a rate increase in September at just 24%, according to the Chicago Mercantile Exchange; a week ago, it was rated a tossup.

The stakes are high. Asset values could tumble without the support of continued low rates. Investors also worry policy makers lack tools to intervene in the economy should it sink again.

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