The market will continue to watch every word from the Federal Reserve and other central banks closely as interest rates stay at historic lows, a leading economist told CNBC Tuesday.
Comments from Fed Governor Ben Bernanke and European Central Bank Governor Mario Draghi moved markets around the world Monday evening and Tuesday morning.
“Central banks act through language and the tiniest shade of difference in this month’s communiqué from last month’s can make a great deal of difference,” Richard Portes, Founder and President of the Centre for Economic Policy Research (CEPR), said.
Bernanke’s comments on the weakness of the U.S. jobs market were taken as a hint that the central bank is prepared to keep interest rates near zero for some time.
There has been much speculation about when central banks in the U.S., the UK and the rest of Europe will raise interest rates from their current historic lows. The Fed has indicated that it will keep interest rates on hold until 2014 – but improving U.S. economic data has led some to suggest that it may move earlier.
“It’s not possible to focus on a particular date. That will depend on the realization of the data,” Portes said.
“What the central banks try to do is to manipulate the expectations. They don’t want to have to intervene directly. There are legitimate concerns about a premature rise in rates choking the very fragile recovery.”