Why a Fed Rate Hike May Be Delayed

None of the controversial budget-cutting proposals put forth by Paul Ryan have become law. Nor has the federal budget deficit shrunk by as much as a penny. Yet Ryan's rhetoric has already forced President Barack Obama to respond with his own budget-taming plans. In the process, Ryan is also changing the way the market thinks about the Federal Reserve's next move, and that says something about the dilemma central bank Chairman Ben Bernanke faces.

A month ago, before the budget austerity debate started in earnest, traders in the federal fund futures market in Chicago saw a better than 50/50 chance that the Fed would raise interest rates at or before its meeting on Jan. 25, 2012. The thinking was that Bernanke would have to tap on the brakes as inflation reappeared, gross domestic product headed for nearly a 4 percent expansion in 2012, and cheap money from the Fed flooded the world. It would be time to start taking away the punch bowl.