September 22nd, 2015 4:45 PM by Nick Rapplean
The obvious issue today? What can we read in
the Fed's decision to neither raise nor lower interest rates?
The answer, of course, is "Not
much." But--though the decision was effectively a careful avoidance of
deciding--it seems to have been the right choice. Here's why.
For many months, the financial markets across
the world have worried about what the Fed would do with interest rates. Note
that the Fed was charged with making a decision for the world's markets, not
just for those of the U.S. The various economies of the world are more closely
interlocked than ever. Not only do we have to worry about what Germany or
Greece will do next and how it will affect us, we also have to throw into the
analysis the potential effects on foreign economies of what we choose to do.
This can be as tricky as trying to remain
standing in a moving hall of mirrors. It is, further, tremendously difficult to
predict where we will be tomorrow.
Keep in mind the fact that the Fed's decisions
about changes to interest rates here in America can have a powerful effect on
foreign markets. Higher American rates--even slightly higher rates--can push up
the cost of doing business in foreign markets and that, in turn, generally
means a slowdown in the sales of goods and services abroad. In other words,
American companies can themselves be hurt badly if we raise the cost of
borrowing and of using American money for foreign companies. That's why foreign
economic leaders have for months been strongly advising the Fed to leave rates
pretty much where they are.
Now, there has been an on-going argument
between economists who believe our economy is strengthening enough to require
raising rates enough to keep inflation from rising. Other economists, noting
that we haven't seen much higher inflation for years, suggest that we don't
need to base our policy on something that really isn't happening yet. But most
economists, it seems, are confident that our economy will continue to firm.
Neither side won in the latest Fed decision.
Indeed, that decision could be said to affirm that we just don't have a good
enough idea of where the economy is headed, and we need time to figure it out.
That's a refreshing humility.
Of course, what that means is a continuation
of the argument. But that may be a good thing. As many have recently argued,
there is no reason to rush this decision. It can wait. We can, for a change,
let the national and world economies tell their stories for a while.
Whether we will benefit from the time we've
been granted remains to be seen, as does the amount of time we'll have for
reasoned analysis. It's an unusually important time, if that's possible, to
watch the sometimes inscrutable moves of the Fed and the economy.