US Fed maintains the suspense on taper timing

Despite better than expected second quarter US economic growth, the US Federal Reserve has refused to detail when it would start winding back its stimulus.

After all the hoopla and eager anticipation about America’s economic growth figures, the US Federal Reserve once again has left financial and commodity markets bewildered.

Most pundits were expecting a timetable or at least an indication of when the central bank would begin winding back its unprecedented $US85 billon a month stimulus program, with many anticipating a tapering as early as next month.

But despite better than expected second quarter economic growth of 1.7%, the Fed simply reiterated its intentions to continue printing money in an effort to inflate the American economy.

Stronger growth and continued stimulus should have been the perfect tonic for a strong finish on Wall Street. Instead it faltered towards the close of trade (see Shane Oliver's Calmer waters ahead). The greenback should have remained under pressure. But it rose and the Australian dollar dipped below US90c.

The US Fed has two targets it wants met before the stimulus is reduced. It wants inflation to rise above 2% and it has imposed a 6.5% unemployment rate as a further hurdle. Employment numbers, currently at 7.6%, will be released Friday night our time and global markets are likely to tread water until a clearer picture emerges.

The Australian stock market is likely to mark time this morning as investors digest the US developments. While it has regained much of the losses incurred during May and June during the past month, turnover has been light.

That trend should continue as the domestic earnings season kicks into gear next week and ahead of next Tuesday’s crucial Reserve Bank board meeting with traders anticipating another 25 basis point rate cut.

Major development today include toll road operator Transurban’s annual results and the RBA index of commodity prices for July.

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