18 Dec 2014
Fed demotes the “considerable time” phase – ING
FXStreet (Barcelona) - Rob Carnell of ING shares that Fed replaced its “considerable time” phrase with the word “patient” in its meeting, amidst dissent by 3 of its members.
Key Quotes
“So, despite falling inflation, and financial market turbulence, the Fed decided to downgrade the pivotal "considerable time" phrase after all, preferring instead to use the new wording of "…the Committee judges that it can be patient in beginning to normalise the stance of monetary policy”. The “considerable time” phrase has not entirely disappeared, however. The statement then goes on to say “…The Committee sees this guidance as consistent with its previous guidance that it likely will be appropriate to maintain the 0 to ¼% target range…for a considerable time”. No doubt it will disappear entirely next time.”
“What does this mean for monetary policy? The simplistic interpretation existing before yesterday’s meeting, was that it would now be about 6 months until the Fed begins to hike the Fed funds target range.”
“However, Janet Yellen added in her subsequent press conference that patient meant that there would be at least a “couple” more meetings before rates were raised, and that “couple” meant two. In theory, that puts April in the frame as a potential, though in our view, unlikely, first hike.”
“She also went on to add that all FOMC meetings were “live”, that is, the Fed would not only change policy at press briefing meetings. That runs against what we have been expecting, but remember, Yellen also said that the taper would be flexible in response to the economic backdrop, and that didn’t happen. So what we are told, and what the Fed actually do, can be quite different (i.e. beware of forward guidance).”
“But perhaps the other biggest feature of this statement was the degree of dissent. No less than three members dissented. Richard Fisher, who seems to be getting frustrated by FOMC foot-dragging, Kocherlakota, who is concerned about undershooting the price stability target, and Plosser, who thinks the statement should be more state contingent, not time contingent.”
“So far, stocks and Treasuries and also the USD have taken this decision pretty much in their stride, with stocks even rallying. But it remains to be seen how much if any fallout there is in Russia, or any of the other EM markets that have been struggling in recent days. Surely this decision has not helped them?”
Key Quotes
“So, despite falling inflation, and financial market turbulence, the Fed decided to downgrade the pivotal "considerable time" phrase after all, preferring instead to use the new wording of "…the Committee judges that it can be patient in beginning to normalise the stance of monetary policy”. The “considerable time” phrase has not entirely disappeared, however. The statement then goes on to say “…The Committee sees this guidance as consistent with its previous guidance that it likely will be appropriate to maintain the 0 to ¼% target range…for a considerable time”. No doubt it will disappear entirely next time.”
“What does this mean for monetary policy? The simplistic interpretation existing before yesterday’s meeting, was that it would now be about 6 months until the Fed begins to hike the Fed funds target range.”
“However, Janet Yellen added in her subsequent press conference that patient meant that there would be at least a “couple” more meetings before rates were raised, and that “couple” meant two. In theory, that puts April in the frame as a potential, though in our view, unlikely, first hike.”
“She also went on to add that all FOMC meetings were “live”, that is, the Fed would not only change policy at press briefing meetings. That runs against what we have been expecting, but remember, Yellen also said that the taper would be flexible in response to the economic backdrop, and that didn’t happen. So what we are told, and what the Fed actually do, can be quite different (i.e. beware of forward guidance).”
“But perhaps the other biggest feature of this statement was the degree of dissent. No less than three members dissented. Richard Fisher, who seems to be getting frustrated by FOMC foot-dragging, Kocherlakota, who is concerned about undershooting the price stability target, and Plosser, who thinks the statement should be more state contingent, not time contingent.”
“So far, stocks and Treasuries and also the USD have taken this decision pretty much in their stride, with stocks even rallying. But it remains to be seen how much if any fallout there is in Russia, or any of the other EM markets that have been struggling in recent days. Surely this decision has not helped them?”