Yesterday's Fed policy statement was a curious one. What could have motivated it?

The choice of words to describe the health of the U.S. economy in the form of "significant downside risks to the economic outlook" is clearly what has sent financial markets reeling in the last 20 hours or so and the curious thing about it is that it is so out of character for the central bank.

They are normally an optimistic lot and, after making clear with QE2 last year that one of their policy goals was higher stock prices, why on earth would they choose this point in time to suddenly express the gravest of concerns for the economy?

It's not likely that they casually added the words "significant downside risks" to the statement and they must have known what kind of impact they would have.

David Fuller's view If you read on in the article above, Lacono suggests Bernanke may have been sending a message to the Republicans.

Who knows? I missed most of discussion and market action, being away yesterday evening and this morning. On catching up, I felt it was a cack-handed statement by the Fed and "Operation Twist" besmirches the good name of Chubby Checker.


Wall Street was optimistically discounting a stimulus last week. Instead, it got a policy amounting to no more than an economically meaningless shifting of US government paper, interpreted by investors last night and today as a signal to buy long-dated Treasuries while selling equities and commodities.

My guess is that the US economy would have been better off if the Fed had neither held the meeting nor announced a new policy.