Today the Fed made its much awaited FOMC Announcement.
Pundits poring over the statement have generally concluded as does the Financial Times, that Fed Signals Tightening by Mid-2015.
Why?
Because the Fed dropped its forecast that it will keep low interest rates for a “considerable time“.
Now the Fed says it can be “patient” in judging when to start raising rates.
The Financial Times claims the “new language is designed to reassure markets that rate rises are not imminent.“
If rate hikes are not imminent, what difference does the change make?
Three Dissents
Hawk: Richard Fisher objected because “improvement in the U.S. economic performance since October has moved forward, further than the majority of the Committee envisions, the date when it will likely be appropriate to increase the federal funds rate”
Dove: Narayana Kocherlakota believes “the Committee’s decision, in the context of ongoing low inflation and falling market-based measures of longer-term inflation expectations, created undue downside risk to the credibility of the 2 percent inflation target.”
Data Dependent: Charles Plosser believes “the statement should not stress the importance of the passage of time as a key element of its forward guidance and, given the improvement in economic conditions, should not emphasize the consistency of the current forward guidance with previous statements.”
Of the three dissents, there is one hawk, one dove, and one statement can be interpreted any way you want, but generally seems neutral. What Plosser failed to say is what he would have done today, if he was running the show.
As for where interest rates should be now, the answer is clearly “not here” based on numerous asset bubbles the Fed is too blind to see.
In terms of what to expect down the road, it’s quite preposterous to pore over every word as if it means anything. Actions speak louder than words.
Expectations vs. Reality
The market expected a word change, so the Fed made one. But a lot can happen in the next six months. The US could be back in recession next month, or the next four job reports can be 500,000 each.
Those are extremes of course, but they are possible.
“Patient for a Considerable Time”
If a slowdown comes at all, and I believe one is coming, then expect the Fed to be “patient for a considerable time” whether the fed mentions the words “considerable time” again or not.
Viewed that way, the language change is meaningless.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com