The dicey situation in Greece may provide the Federal Reserve with yet another reason to hold off on hiking rates.
The minutes of the Fed's June meeting, released on Wednesday afternoon, showed that the debt crisis in Greece unmistakably weighed on policymakers' minds.
In the discussion of risks to the Fed's economic projections, the minutes note that "several mentioned their uncertainty about whether Greece and its official creditors would reach an agreement."
The impact on financial markets could also be sharp, according to committee members: "Many participants expressed concern that a failure of Greece and its official creditors to resolve their difference could result in disruptions in financial markets in the euro area, with possible spillover effects on the United States."
Of course, the reason the Fed's words are watched so closely is not that the Federal Open Market Committee is composed of rock-star prognosticators; rather, it is because their views on markets and the economy impact their policy decisions. And if worries about Greece are weighing heavily on the Fed, then a prolonged debt crisis could keep the Fed from raising its key federal funds rate target off of crisis levels.
Since that means short-term bonds would continue to be unattractive, it would be good news indeed for so-called "risk assets" such as equities.
"The Fed has expressed that it has a global mandate, and isn't just focused on the U.S.," commented Dennis Davitt, an options trader with Harvest Volatility Advisors. "If the Fed is not raising rates, it is giving the market a synthetic put," meaning that it is providing support for stocks.