The Federal Reserve watches and waits

When confronted by uncertainty that is likely to be resolved in the near future, the best course is often to watch and wait. This week the Federal Reserve's Open Market Committee did just that when it acknowledged some probably temporary disturbances in the economy but gave no hostages to fortune about the path of interest rates.

The FOMC is right to take a cautious approach rather than trying to manage expectations of a tightening in monetary policy. Recent weak economic data may indeed be "transitory", as the Fed argued. But with very little sign that growth and inflation will run out of control, the FOMC is wise to sit and wait for new information to come in.

The performance both of the US economy and the labour market were undoubtedly weaker than expected earlier this year. Gross domestic product expanded by just 0.2 per cent in the first quarter, and growth in non-farm payrolls undershot predictions.

At least some of that softening is likely to be temporary, reflecting a combination of unusually cold winter weather, a west coast dock strike and a fall in mining investment spurred by the past year's drop in the oil price. The US economy has in effect already had a monetary tightening as a result of the sharp rise in the dollar, which has more recently stalled and indeed gone into reverse. There is a good case that, with these factors taken out, underlying growth is quite strong.

Still, there should be no rush to raise rates for the first time in nearly a decade. Inflation is still below target, the potential output of the US economy remains uncertain and global growth continues to disappoint.

Another central bank announcement this week underlines the foolishness of tightening monetary policy too quickly. The Riksbank, the Swedish central bank, said it would expand its quantitative easing programme in amounts that imply it will end up owning about 15 per cent of all Swedish government bonds.

The Riksbank has already lowered its repo rate to minus 0.25 per cent, the world's lowest, and may be compelled by the threat of deflation to cut it further. Yet the central bank may not have been forced to ease so aggressively had it not prematurely raised interest rates in 2010 and 2011, and then failed to reverse course quickly enough when inflation sank below target.

Sweden also provides a cautionary tale about the dangers of "forward guidance", or trying to manage investors' expectations about where interest rates are going. Having set out before the financial crisis to become one of the most transparent monetary policy makers in the world, the Riksbank has ended up as one of the most confusing. The Fed's current approach of avoiding hostages to fortune and allowing rate rises to be driven by the economic data are greatly preferable.

According to financial markets, the first US rate rise is likely to come after the FOMC's September meeting rather than, as thought earlier in the year, June. That looks about right: another few months' data will help determine whether the economic weakness is as transitory as it appears. Yet when the moment comes, the FOMC should continue to be guided by events in the economy, not by a predetermined plan to withdraw easing.

Since the global financial crisis struck, no central bank anywhere in an advanced economy has dawdled over tightening policy and seen inflation take off uncontrollably as a result. Waiting another few months is highly unlikely to make the Fed the first. By taking the data as they come, the FOMC is taking the right approach. It should stick with it.

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