By Ruma Dubey

As against expectations of at least 100 bps rise in interest rates, the US Fed once again did the unpredictable and kept the rates unchanged. So the main interest rates remain low, between zero to 0.25 percent, where it’s been since December 2008. And the Fed has said the rates will remain so for an ‘extended period’.

What does this mean? The good news is that the stimulus continues and the US markets celebrated. The S&P 500 gained 8.95 points to 1,159.46, which is its highest closing level in 17 months. But the bad news is that there is still a long way to recovery in the US. This status quo on rates means that the Fed is not yet convinced – neither about the recovery nor about employment picking up. The US economy has lost 8.4 million jobs since the recession began in December 2007 and unemployment in February was 9.7%, which is high yet considerably lower than the 10.1% recorded in October.

This cautious approach by the Fed left many of banks surprised and they had assumed that rates would up and had accordingly, revised their forecast downwards. So now with rates remaining low for an ‘extended period’ they have once again revised the their estimates upwards.

And the question doing the rounds is – what exactly is the ‘extended period’? Not many know the exact tenure of this ‘period’ but the assumption of that the rate change could happen after three or four more Fed meets. 8 Fed meets are scheduled per year so if one goes by that, then we are looking at rate hikes, around 25 bps, only by the November 2010.

The US markets though earlier happy over the status quo soon felt that this may not be such a good move after all. There is worry that such continuous low levels for an extended period could lead to the buildup of financial imbalances and increase risks to longer-run macroeconomic and financial stability.

Taking a cue from the US, Bank of Japan also kept interest rates at record low and doubled the amount of cash made available to the banks.

Naturally, the Asian markets have been happy and taking a cue from the world markets, the Indian markets have also remained high since yesterday.

But the deeper, underlying question, below this status quo of rates by US and Japan is – does recovery currently remain ephemeral only in the minds? Looks like the road to recovery is long drawn and lengthy, we have not yet quite got there yet but by end of 2010, maybe the goal post would become visible. Remember, full recovery for India would happen only when exports surge and that will happen only once the world economies recover fully.