Paris Attacks Not Likely to Impact Fed Rate Decision

If the Federal Reserve plans to raise interest rates in December, the terrorist attacks in Paris aren’t likely to alter those plans, analysts said Monday.

“I still think that this event alone will not cause the Fed to alter its course of most likely starting in December,” Nuveen Asset Management’s Bob Doll said in an interview with Stuart Varney on the FOX Business Network.

Doll said the wild card that remains uncertain is how European countries will react in the wake of the attacks on Friday, which left 129 dead across three locations in the French capital.

If France and its European neighbors decide to crack down on terrorism by closing off their borders to stifle immigration and by initiating other policies that could act as obstacles to economic growth, that could place an additional drag on an already beleaguered European economy.

“Then it’s a different consequence,” said Doll.

Should European growth grind to a halt as a result of anti-terror policies it would eventually bounce back across the Atlantic and dig into the U.S. economy, Doll explained. “Obviously, Europe’s an important market to the United States,” he said.

But, echoing the comments of other analysts on Monday, Doll said smaller-scale terrorist events aren’t usually viewed as having long-term negative consequences for the global economy.

Citing the 2000 attack on the USS Cole in Yemen, the 2004 bombing at a Madrid train station and the 2005 bombing on a London subway, Doll said, “These things tend to come and go from a market standpoint and didn’t really have a lasting impact at all. The markets are assuming that it’s going to be business pretty much as usual.”

The September 11, 2001 attack and Pearl Harbor were different situations, he added.

The Fed is meeting December 15 and 16 and there is wide speculation that central bankers will raise interest rates at the meeting for the first time in nearly a decade. Rates were dropped to their current near-zero rate in December 2008 to help stimulate the economy by lowering borrowing costs.

Fed officials have stated repeatedly that the decision to raise rates will be “data dependent,” meaning that a decision to lift or hold rates steady will be based on the latest economic data. If the data indicates that the U.S. is ready for higher borrowing costs, the Fed will raise. If the data says otherwise, rates will stay the same.

Doll and other analysts, many of them pointing to Monday’s strong surge in U.S. and European stock markets, said the Paris attacks aren’t likely to have much of an impact on upcoming economic indicators that might influence the Fed’s decision.