The Fed’s next step

More important than the actual rate decision at this week’s Fed meeting will be the language of the policy statement


The US Federal Reserve is widely expected to hold interest rates when its policy makers meet this week. The market for Fed funds futures seems to be assigning a low probability to an interest rate hike. So more important than the actual rate decision will be the language of the policy statement. US Fed chair Janet Yellen had spoken extensively about global risks after the previous policy meeting. It remains to be seen whether she signals that these risks have receded somewhat in recent weeks.

The Fed meeting will be flanked by similar policy meetings in Europe and Japan. The European Central Bank promised last week to keep monetary policy loose while a meeting of the Bank of Japan is expected to do the same. This should provide some relief to the financial markets that have regained some of the ground lost earlier in the year. But these will be temporary effects. What really matters in the long run is the deleveraging of corporate balance sheets and a strong recovery in profits.