Let the dust settle but don’t get comfortable. Following the anticipation over last week’s Federal Reserve's interest rate meeting, investors must now square up with its decision to do nothing.
We witnessed the immediate reaction in the stock and bond markets last week. The S&P 500 Stock Index had a swing of more than 1 percent on the day of the Fed’s decision. However, the week ahead will be filled with more second-guessing, both criticism and support for the action, and new guesses about the path forward for the central bank.
By leaving interest rates unchanged, and despite its insistence the American economy is “doing well”, the Fed is sending a signal it is not confident the U.S. economy has found firm enough footing to withstand a slowdown in China.
This is the reality of the de facto world’s banker. It has to wrestle with dangerously low inflation due to a strong U.S. dollar and a fall in commodity prices worldwide even as low unemployment here would usually add inflationary pressures to the economy. The Fed’s statutory responsibilities may not extend beyond America’s shores, but clearly its considerations do.
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There are the words the bank's interest rate setting committee used last week -- “Recent global economic and financial developments may restrain economic activity “ -- and there is the message delivered by Chairman Janet Yellen at her press conference that “recent developments have not fundamentally affected” her agency’s outlook.
The week ahead will help determine if it’s changed the outlook and risk tolerance of investors.
Financial journalist Tom Hudson hosts The Sunshine Economy on WLRN-FM in Miami. Follow him on Twitter @HudsonsView.