The US Federal Reserve had no reason to lift interest rates from their current record low of 0% to 0.25%.
The post meeting Fed statement said “The economic recovery is proceeding” and “the labor market is improving gradually…financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad.”
The Fed’s statement, very weak new home sales, and weak sentiment in commodity and other sharemarkets, saw Wall Street weaken.
Gold, copper and oil all eased. The Aussie dollar remained above 87 USc.
If anything, the statement’s tone was a bit weaker than in previous statements, with its comment "Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad,"
Inflation is very low, unemployment is high, consumption is weak, business investment OK, but not that strong and housing and construction is still depressed and showing signs of sliding deeper into a black hole.
Sales of pre-owned homes fell last month, instead of rising as forecast, housing starts last month dipped 10% from April.
And sales of new homes in May slumped a shocking 33% to a 300,000 annual level, the lowest since 1963 (and lower than during the credit crunch and recession).
Mortgage applications are down sharply and most that are being made are refinancings, not for buying new homes.
US bank lending to business and consumers continues to shrink, business is raising huge amounts of debt via bond markets, but not spending it on investment or acquisitions.
And now there’s this rush to austerity in Europe, as we saw with the UK’s huge budget cuts and taxes rises earlier this week.
That was after big and middling cuts in Ireland, Italy, Greece, Spain, Portugal and Germany that are approaching 250 billion euros over the next two to five years.
The UK is looking to cut its budget deficit by around $US180 billion over the next five years. Germany is looking for cuts of more than $US100 billion over four, perhaps five years.
Japan is going to cut debt, and try and cut spending (but no taxes rises yet), China has tightened monetary policy (as has Canada, Sweden, Malaysia, new Zealand and of course, Australia).
Some have every reason to tighten, such as Australia and China, others in Europe have been battered by the market into cutting debt and spending to try and protect the euro and the eurozone.
So the Fed will keep its current monetary policy stance for months and months to offset this belief that austerity means prosperity.
Therefore expect rates and monetary policy in the UK and the eurozone also to remain low and relatively loose for months to come to try and counter this tightening trend.
There was no sign of what the central bank might do if the economy slows faster than expected.
The Fed is "zero-bound’ by its current level for the Federal Funds rate, if there is a double dip, then it will have to stop its planned withdrawal of some of its quantitative easing later this year.
Watch for this statement in particular:
"The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period."
It was in the latest statement, unchanged and telling us that for all the talk of recovery, the American economy is still too weak to handle an interest rate rise.
