"Policy makers want to give themselves some room to maneuver"
"Federal Reserve policy makers are hoping, even praying, that no unexpected domestic development or international crisis intervenes to prevent them from taking the first baby step to normalize interest rates at the Sept.16-17 meeting."
"Why? Fed officials point to a number of reasons: the unnatural state of a near-zero benchmark rate; the potential risk of financial instability; an improving labor market; diminishing headwinds; and yes, expectations of 3% growth just over the horizon."Fed chairman Janet Yellen, usually considered a member of the Fed's dovish faction, sounded determined to act when she testified to Congress last week. 'We are close to where we want to be, and we now think that the economy cannot only tolerate but needs higher interest rates,' Yellen said during the Q&A. 'Needs,' as in the patient needs his medicine..."
"What's the urgency with an economy chugging along at 2-something-per-cent and low inflation? I suspect Fed officials are terrified of being caught with their pants down, in a manner of speaking. Should some unforeseen event come along to upend the economy, the Fed's arsenal would be dry. They'd like to put some space between their policy rate and zero."
"Sure, the Fed has a balance sheet that can be expanded almost without limit. But policy makers are the first to tell you they have little experience with the extraordinary measures taken in response to the financial crisis."
"The goal of QE was to ease financial conditions. As explained by Bernanke in a November 2010 Washington Post op-ed, the Fed buys long-term Treasuries, which lowers risk-free rates and drives investors into riskier assets: stocks, corporate bonds and mortgage-backed securities. The rise in stock prices boosts consumer wealth, raises confidence and encourages spending, while the decline in corporate bond and mortgage rates stimulates investment and makes housing more affordable."
"And oil is just part of the story. If the Fed is looking for a reason to hold off on a September rate increase, it can look no further than commodities markets. The CRB BLS spot raw industrial price index, which includes economy-sensitive materials such as scrap metals (copper, steel and lead), rubber and zinc, has taken a dive to levels last seen in late 2009. The decline in raw materials prices will feed into the prices of finished goods. So the Fed's confidence in inflation heading higher may be dashed once again."