By Edward Chancellor
The author is a guest columnist for Reuters Breakingviews. The opinions expressed are his own.
EU foreign ministers hold an extraordinary meeting today after their leaders have asked them to consider possible new sanctions on Russia. A final decision to impose them is likely to be left to their bosses who meet in next month and again in March.
The general sense from financial strategists and the commentators around them is to look at earnings reports like what was put out there from Caterpillar, Microsoft and a number of other big-name companies, see their disappointments (in part the result of the dollar’s strength, which seems to have surprised the hell out of a lot of people, judging by the Tuesday selloff) and wonder why the Fed might consider holding the line with its “coming soon!” approach to raising rates before long. Add to that all the recent moves by the various other worldwide central banks to lower rates – the Danes, the euro zone, the Canadians – and the Fed looks even more out on an island with the harder line that it is taking at this point.
There's something of a disconnect right now when it comes to the expectations the Fed will raise rates before long - the markets still see it as happening in late-2015, the most recent poll of primary dealers puts it in the mid-2015 area - and the way in which inflation expectations overall have dropped in the last few weeks, given the plunge in oil prices.
U.S. markets stumbled a little out of the gate in 2015, after a third year of double-digit gains. The market is having a weak go of it Monday morning, and funds are moving over into the bond market to continue the now-into-three-years run of "are you kidding me with these yields" that's likely to confound more than a few people this year.
Markets like to tie themselves in knots ahead of Fed decisions. Instead of landing on what's expected, at times of volatility investors instead go in the other direction and start to consider all sorts of wild scenarios on what the slide-rule committee might do instead. But the outlook for the Fed's statement should be pretty straightforward: the Fed is likely to go with what the market expects, and remove its phrase talking about keeping rates at rock-bottom levels for a "considerable time," as it has no reason not to.