By James Saft
(Reuters) – Ben Bernanke and Mario Draghi are keeping their powder dry but may find, in the end, that there is a limit to the usefulness of monetary policy bullets.
The Federal Reserve and the European Central Bank are both keeping their options open as global economic conditions worsen and the euro zone looks, if anything, more fragile than in recent months.
The ECB did the absolute minimum at its meeting on Wednesday, leaving rates unchanged and extending some liquidity provisions until the end of the year. This despite clear signs of broad-based weakening in the euro zone economy and a widespread credit drought which looks very likely to worsen.
The Fed, for its part, is generally thought likely to temporize at its meeting this month, perhaps extending a reallocation of its bond portfolio intended to suppress short-term rates but, again, holding fire on any major new extraordinary monetary policy effort.
And yet investors mid-week pushed shares higher, partly wagering that Europe would get its institutions together but also in expectation that further distress would bring on further monetary policy medicine.