Rate Watchers Read the Chinese Tea Leaves -- Ahead of Tape

By Spencer Jakab 

        "May you live in interesting times" isn't an actual Chinese curse, but China certainly has a knack for making things that way.
        On Tuesday, with the Federal Reserve just 37 days away from what is widely expected to be the end of six-and-a-half years of zero interest rate policy, Beijing shocked the world with a devaluation of the yuan.
        Speaking before and after the step, respectively, Atlanta and New York Federal Reserve Bank presidents Dennis Lockhart and William Dudley cast doubt on the notion that run-of-the mill macroeconomic turbulence would delay a September increase. And a survey of 60 economists by The Wall Street Journal conducted mostly before China's bombshell showed that 82% expected an increase next month.
        With the Fed laser-focused on largely encouraging U.S. economic data, the news from Beijing seems like a tempest in a Chinese teapot.
        But what about its effect, at the margin, on a critical set of U.S. economic data? Namely, inflation. Friday's producer-price index and Wednesday's consumer-price index will be the penultimate readings before the big decision.
        Fed Chairwoman Janet Yellen described the drag exerted on those measures by lower oil prices, which began slumping a year ago, as "transitory." The strength of the dollar, which is both another drag as well as an outgrowth of the belief the Fed will be the first major central bank to tighten, is thornier. The two combined helped import prices for July, released Thursday, slump by 10.4% compared with a year earlier.
        The U.S. is a large enough economy not to be rattled by such developments but not big enough to ignore them completely. June's consumer-price index was up only barely, year over year. Analysts polled by the WSJ see consumer-price inflation reaching 1.1% by December and nearly 2% by next June.
        In the wake of the China news, though, the CRB Raw Materials Spot Index hit its lowest since November 2009, oil prices reached a six-year low and benchmark Treasury note yields touched a three month low.
        With markets recovering somewhat from the shock, China's move probably won't delay a September hike. But its contribution to slower price gains overall could slow the pace of Fed tightening.
        A yuan for your thoughts, Janet?
        (END) Dow Jones Newswires

        August 13, 2015 13:53 ET (17:53 GMT)