The US Federal Reserve sat on its hands and left interest rates unchanged at its meeting overnight Tuesday our time.
The Federal Reserve again pledged to keep interest rates near zero for an "extended period" even as it sounded more confident about the jobs outlook in the US.
The central bank’s nod to a firmer job market offered a hint that it may be moving closer to dropping its promise to hold borrowing costs at rock bottom levels. It also had upbeat words on some business spending.
"The (Fed’s policy) committee … continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period," the central bank said in a statement.
The Fed said the labour market was "stabilising," a more upbeat view than expressed after its last meeting in late January, when the policy-setting committee said only that deterioration in the labor market was "abating."
The central bank also said business spending on equipment and software had risen "significantly," also a brighter assessment than the one it gave in January.
Industrial production rose 0.1% in January, for the eight month in a row of increases.
Stronger output from mines, oil fields and power utilities helped, thanks to the big snow storms. But business output of computers and associated equipment was also noted.
But the IP numbers also contained another message.
The ‘output gap (that’s the difference between the potential growth rate of the US economy and the actual rate) in the American economy remains very large.
As Macquarie Bank economist Rory Robertson explains, it is "the largest in generations" and has "downshifted US wages growth and core inflation. And there’s more to come in the next year or two. Forecasts of excess US inflation are just down the track, are a joke."
The IP report overnight reinforced that point: US industry operated at 72.7% capacity in January, up from 72.5% in December, but well under the 80% average of the last 20 years.
Inflation is not going to be a problem for some time, so rates will remain low.
That will allow more time for the Fed to continue with some stimulus for an economy where unemployment is not going to rise quickly, despite some seeing 200,000 to 300,000 new jobs added this month.
US housing though remains a worry, with more signs of weakness persisting, despite signs of strengthening prices in more major cities.
In Australia is a different story. Yesterday’s Reserve Bank board meeting minutes for the meeting on March 2 which boosted rates 0.25% to 4%, contained no new insights, except the bank will lift rates in a "gradual" and Timely" manner.
The key phrase from the minutes read:
"On balance, members concluded evidence that had become available recently had confirmed that it remained appropriate for interest rates to move gradually towards normal levels, and that it was timely to take another step in that direction."
America’s Fed’s key phrase contained the words "for an extended period" in relation to interest rates.
That tells us the vast difference between our economy and America’s, no matter what some commentators in both countries might write every now and then.
