With the long-awaited rebound in job creation finally underway and poised to move into high gear, you'd think the time had finally come for the Fed's hawks to have their way with the central bank's monetary policy.
Think again. It's a big world out there, even for the Fed.
Even if May's nonfarm payrolls report Friday shows a half-million gain as expected, Chairman Ben Bernanke and like thinkers at the Fed will have plenty of other reasons to stay the course at the policy meeting June 22-23.
So while regional Fed presidents such as Dennis Lockhart Thursday talked about higher rates down the road, the Fed boss himself shied away from monetary policy in his remarks.
Not that investors and economists needed much in the way of hints.
"There's too many worries, too much uncertainty," says James Awad, citing a litany of negatives from Europe's debt crisis and subsequent austerity measures, the inflation-deflation see-saw, the Gulf oil spill and the stock market pullback.
He might have included a slowing housing market rebound, which some consider a precursor to a double-dip real estate recession, and rising Libor rates, a particularly ominious and resonant sign after the dark days of the financial crisis in 2008.
Given all that, economists say the Fed will keep its famous language about how "economic conditions...are likely to warrant exceptionally low levels of the federal funds rate for an extended period."
In the current environment, the less famous, or second shoe of sorts, that has appeared routinely in the FOMC statement, is equally important:
"The committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.
"To keep that language longer would seem to me to be a pretty appropriate action," says veteran Fed-watcher David Jones--especially in the current environment.
Jones points to a May 11 speech of outgoing Fed Vice-Chairman Donald Kohn, who said: "By noting that the federal funds rate was likely to remain at "exceptionally low" levels for an "extended period," the FOMC likely was able to keep long-term interest rates lower than would otherwise have been the case. "
Among other things, it's another kind of support for the housing market--especially after the end of the Fed's massive mortgage-back-securities purchase program in March.
It also helps foster the the carry trade. which despite its demerits privides a kind of liquidity.
More importantly, and specifically, at the moment, "it's the perfect way to help cushion our long-term rates from pressure caused by the Euro-Zone sovereign debt crisis," says Jones.
In sum, events since the last FOMC meeting April resemble a one step forward, two steps back situation.
"There's a general sense the European banking system is not functioning very well," says hedge fund managing director Ram Bhagavatula of Comibinatorics Capital, citing a recent panel discussion with other Wall Street economists.
He cites weak commercial bank interest in a special dollar-based lending facility set up by the Fed and the central banks of Europe May 9 meant to increase liquidity, and their difficulty in finding term funding beyond a daily or monthly basis.
"While it may sound like mechanics, it creates uncertainty," adds Bhagavatula. "June 22-23 is not late enough for these issues to be resolved."
If so, and with any inter-meeting move pretty much out of the question, the next chance is the August 10 meeting, which may also be enough time for the jobless rate--hovering around 10 percent over the last nine months--to be on a consistent, downward path.
Jones, for one, expects a tell-tale change in language in August, followed by the Fed's first rate hike, as early as the September 21 meeting, which is similar to the two-step approach it took in the spring of 2003 during the recovery from the brief 2001 recession.
"They might wait till the last minute," says Jones. "The markets are going to be surprised by how serious the Fed gets in executing its exit strategy."
How an increasingly impatient market takes such a timeline is, of course, very uncertain, but low rates can be a stigma as much as they can be stimulative; though the Fed recently upped its growth forecast, it's easy to associate low rates with the risk of deflation as much as low inflation and that can hold back an expansion.
Skeptics say handicapping aside there is one takeaway for the markets.
"The Fed does not have a history of pre-emptive policy," says Bhagavatula. "Nothing is pushing it."