Fed Leaves Rates Alone, Reveals Nothing About Exit

Markets can rest easy this summer: the Federal Reserve has no intention of even hinting that it will raise rates in the near future. In what could be characterized as the most boring, unrevealing Federal Open Market Committee meeting statement in some time, the Fed mostly echoed what it's said in April and past months.

The only even vaguely interesting new sentence in the statement was:

Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad.

This statement matters because it explains why the rest of the statement is so boring. Sovereign debt problems in Europe have shaken global markets. The Fed isn't warning of a double-dip recession here: it still expects a slow recovery. But it also appears to imply that an economic contraction isn't beyond the realm of possibility, under the circumstances.

By now, many people expected that we would have a more concrete blueprint of when the Fed's exit strategy will begin. When might it begin raising rates? When will it begin selling the assets it accumulated during the financial crisis? We won't know the answers to these questions as soon as we thought, because the problems in Europe have made the Fed wary about scaring the market with signs of tightening.

As for rates, the Fed continues to assure banks that they will remain "exceptionally low" for "an extended period." Kansas City Federal Reserve President Thomas M. Hoenig remains the lone dissenter. He believes that this language should be weakened so the central bank can feel more flexibility to raise rates quickly if inflation suddenly manifests itself.

Of course, at this time, inflation is very low. It appears to be well under control, which makes it unsurprising that the Fed wouldn't feel the need to provide greater certainty on when it might raise rates by changing its language. As the statement noted, energy prices are actually deflationary.

The next FOMC meeting is scheduled for August.

Presented by

Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.

How to Cook Spaghetti Squash (and Why)

Cooking for yourself is one of the surest ways to eat well. Bestselling author Mark Bittman teaches James Hamblin the recipe that everyone is Googling.

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register.

blog comments powered by Disqus

Video

How to Cook Spaghetti Squash (and Why)

Cooking for yourself is one of the surest ways to eat well.

Video

Before Tinder, a Tree

Looking for your soulmate? Write a letter to the "Bridegroom's Oak" in Germany.

Video

The Health Benefits of Going Outside

People spend too much time indoors. One solution: ecotherapy.

Video

Where High Tech Meets the 1950s

Why did Green Bank, West Virginia, ban wireless signals? For science.

Video

Yes, Quidditch Is Real

How J.K. Rowling's magical sport spread from Hogwarts to college campuses

Video

Would You Live in a Treehouse?

A treehouse can be an ideal office space, vacation rental, and way of reconnecting with your youth.

More in Business

Just In