The Fed Guessing Game Is Over... for Now

Inscrutable, Alan Greenspan may sometimes be. Unpredictable he is not.

The Fed chairman emerged Wednesday from a two-day meeting with his Federal Open Market Committee at 2:15 with the news that he would do what, by now, nearly everyone watching closely expected him to. The Fed left short-term interest rates alone and spoke ominously, if opaquely, about the future, the better to keep the markets on their guard about a quarter-point hike (already forecasted in some circles) at the FOMC's next meeting August 22.

For their own part, Wall Street investors finally decided Wednesday morning they knew what was coming, and put together a nice little "buy on the rumor, sell on the news" rally that stood ready to unravel just as neatly in the wake of Greenspan's call. The Fed's comments are aimed at defusing a rally-cum-wealth effect that could spark consumption and undo all of Big Al's good work. But there'll be more than enough relief left over to spark a nice upturn in the days and weeks ahead.

Absent, of course, a compelling reason to worry. There are two fears here: one that Greenspan's march of rate hikes will rupture corporate earnings, the other that this economy will bounce back from apparent lulls, like in 1998 and 1999, to force a more dramatic tightening on credit in August and possibly even beyond. As Greenspan's soft landing glides on — so far, so good — investors and the Fed chairman alike will be scouring the economic skies for signs. And so the Fed guessing game begins all over again.