The Fed continued its behind-the-scenes spinning of world markets today, leaking a new newspaper article that backed off just a smidgen -- but an apparently important one -- from Monday's suggestion that interest rates might soon be rising.
Monday The Wall Street Journal was the foil for the Central Bank's fears of an overheating economy. A story in the business bible reported that in a 19 March meeting, policymakers had agreed that given strong first-quarter growth and ever-tightening labor markets in the United States, they were inclined toward higher interest rates. That news sent markets reeling, with the Dow dropping more than 200 points before rallying late in Monday's session.
Apparently alarmed by the reaction, "Fed sources" got on the phone to The Washington Post and whispered that while there had been consensus that a "bias" for higher rates was in order, "subsequent reports have suggested a cooling" of the economy. So: Maybe rates won't go up. And indeed, today's report immediately calmed Treasury traders in London, and was expected to help stocks in early trading in New York.
What's important to remember is that the Fed can only go so far in setting interest rates, which are almost entirely governed by markets, not a magic wand in Washington. The Central Bank mostly works to influence markets -- by setting some key rates, but also by talking to reporters at well-read East Coast newspapers.
