2016-06-05theguardian.com

With its reputation at stake, the Fed has gone out of its way since March to convince the markets that it was serious about two rate rises in 2016. Really, really it was. Janet Yellen, the Fed's chair, told Wall Street that it might be "confused" about the way the central bank was going about its business.

Yet if anyone is confused it is Yellen, not the markets, which have rightly calculated that the Fed is all talk and should be judged by what it does and not by what it says....

In the circumstances, it beggars belief that the Fed will raise rates in the next couple of months. If Yellen continues to talk tough, the markets will throw a tantrum, and that will be enough to tip an already feeble economy over the edge into recession. Share prices will plummet, the oil price will head back towards $30 a barrel. It will be like early 2016, only worse.

So all the Fed can do is respond to the data by toning down the rhetoric. That will be embarrassing. It will mean eating humble pie. It will further damage the bank's credibility. But it has no choice.



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