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  • If modern central banking came with a manual, the tome would undoubtedly be called ABC.

  • Always be cautious.

  • ABC was certainly the leitmotif for this week's Central Bank meeting bonanza.

  • The Bank of England, the Federal Reserve, and the Bank of Japan all refrain from action.

  • On Thursday, the Bank of England muttered dark about Brexit risks.

  • Also the BOJ grumbled in vain about the yen's strength.

  • The real action came from the Fed on Wednesday.

  • Now investors had expected a cautious start after a woeful jobs report and with a nerve-wrecking UK referendum on EU membership on the horizon.

  • But some thought that policy makers would hint that a July rate increase was a possibility.

  • And instead, the Fed served up a cautious statement, pessimistic forecast, and a strikingly guarded press conference.

  • The ten year treasury yield had dully dropped to its lowest level since August, 2012.

  • Now, Fed chair Janet Yellen said it's not impossible that policy makers could raise rates in July,

  • but investors have shrugged off this feeble attempt at keeping the possibility alive.

  • While there will be more clarity on the UK referendum outcome by then,

  • Fed Funds futures indicate that investors only see a 2% chance that the US Central Bank will tighten then.

  • What is even more remarkable is that markets are implying that there is a two-thirds chance that the Fed is paralyzed for the rest of the year.

  • The last time investors were this downbeat on US interest rates in February, global markets were in the dumps.

  • Essentially, investors are seeing the Fed's dovishness and doubling down.

  • And as outspoken bond fund manager Jeffrey Gundlach said, the rate-hike cycle has left the building.

  • Now, perhaps that's true.

  • But remember, a majority of policy makers still think the Fed should raise interest rates at least twice this year, and three more times in 2017.

  • And despite the weak May jobs report,

  • the labor market remains strong, the economy relatively resilient, the inflation forecasts were actually raised.

  • The Fed may be cautious, but it's not catatonic.

  • And given depressed yields, even a small shift in rate expectations could deliver a shock to the sparsely traded summer markets.

  • This is Robert Wigglesworth for the Financial Times.

If modern central banking came with a manual, the tome would undoubtedly be called ABC.

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