Up till Greece hit the fan this week, quite a few US economists and analysts were hoping the Fed would change the wording of its post meeting statement early today to qualify that phrase "extended period” and put the markets out of their misery.
By introducing some sort of term limit on the current record low rates, analysts would have something new to write about.
Rising jobs numbers, house prices, retail sales and car sales have made Americans more confident as the Conference board confidence survey showed this week.
Profits are rising, even though many commentators don’t see the cost cuts and job losses that have allowed this to happen.
Some analysts reckoned the Fed might be tempted into making a change in the key part of successive post meeting statements since early last year.
That statement reads (from the March 16, 2010 meeting):
"The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and 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." (link).
This morning the Fed repeated that statement:
"The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and 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 Federal Open Market Committee said in its usual post meeting comment.
That sums up US monetary policy and the Fed’s current view of the economy.
Fed chairman, Ben Bernanke has also made it clear to the market that any change in that assessment of an "extended period" is linked to what’s happening in the economy, not time or the calendar.
The Fed did acknowledge an improvement in the US labour market, as we saw with the rise in jobs in March.
So naturally with the flow of data becoming more positive, commentators have been wondering if there will be a change in the wording.
But suddenly Greece is wobbling towards default, and other debtor countries are looking nervously at their bond yields rising.
And S&P downgraded Spain overnight, adding to the pressures flowing from Europe.
So there was no chance the Fed doing anything but reiterating its previous statements.
This time it’s to support Europe as much as the US recovery.
Any move to indicate a future rise in US rates would send the euro lower and the dollar higher.
With the UK election next week looking very close, keep an eye on UK bonds for any sign of a raid or sell-off if there’s a hung poll and no clear government.
An ideal time to make money is when there is really no one in charge.
