A little pregnant.

IT was either a significant change in outlook or a reinforcement of the view that rates aren't going up anytime soon. Either way, it blindsided the bond market.

All the focus leading up to last week's Federal Reserve meeting was on whether the central bank would drop the assurance that rates could stay low for "a considerable period."

But the Fed changed its outlook instead.

"The probability of an unwelcome fall in inflation has diminished in recent months and now appears almost equal to that of a rise in inflation," the statement said.

Almost, but not quite. What's the Fed's overall balance-of-risks assessment?

"I think they are now neutral, but that means nothing except that they won't raise rates at the next meeting," said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, N.Y.

The Fed first separated the risks to inflation and growth at the May meeting. At the five meetings from May through October, the risk that inflation could fall too low outweighed the balanced outlook for growth.

One of the more curious comments came from former Fed governor Lyle Gramley, who told Bloomberg News that "with the kind of household debt we have right now even a moderate increase in interest rates would slow spending a good deal."

You can't argue with him. But is that any reason to encourage more borrowing via a negative real overnight rate?

The argument for normalizing interest rates is less about the threat of inflation than the risk of another misallocation of capital.

"Keeping real interest rates negative encourages more borrowing, risk-taking and allocation of capital to sectors of the economy that benefit from credit," said Joe Carson, head of global economics at Alliance Capital Management. "It encourages asset accumulation financed by debt."

That means the economy is more susceptible to a rise in rates.

The household debt service burden has remained stubbornly high as increased borrowing offset the effect of lowering rates. The ratio of debt payments on mortgage and consumer debt to disposable personal income stood at 13.3 percent in the second quarter, virtually unchanged for the sixth consecutive quarter.

Following the 1990-1991 recession, the debt service burden tumbled. This time, households increased their debt by an annualized 11.5 percent in the second quarter, the biggest increase in 16 years, according to the Fed's Flow of Funds report.

Negative real rates may be a free ride for the borrower, but they aren't a free lunch for the economy. For a reminder of the costs of negative real rates, you might want to review the decade of the 1970s.