US FOMC Interest Rate decision today is the main focus of the week; however, considering that Feds will probably not hike rates before the mid of the year, especially after recent Fed Yellen’s Congressional testimony, today could just be a repeat of last meeting (i.e. a non-event)… Of course, we’ll be watching the live webcast and take advantage of any surprises in today’s meeting.
2:00pm US FOMC Interest Rate Forecast 0.25% Previous 0.25%
DEVIATION: N/A
Let’s take a look at the prior changes for last FOMC Statement as our basis for today’s FOMC Statement.
BOLD [ ] INDICATES CHANGES.
January 28 - FOMC Statement Analysis
Information received since the Federal Open Market Committee met in December suggests that economic activity has been expanding at a solid pace [revised from "moderate pace"]. Labor market conditions have improved further, with strong job gains and a lower unemployment rate. On balance, a range of labor market indicators suggests that underutilization of labor resources continues to diminish. Household spending is rising moderately; recent declines in energy prices have boosted household purchasing power [adds nod to lower energy helping consumers]. Business fixed investment is advancing, while the recovery in the housing sector remains slow. Inflation has declined further below the Committee’s longer-run objective [adds "further"], largely reflecting declines in energy prices [revised from "partly reflecting"]. Market-based measures of inflation compensation have declined substantially in recent months [revised from "declined somewhat further"]; survey-based measures of longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced. Inflation is anticipated to decline further in the near term [new clause], but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate. The Committee continues to monitor inflation developments closely.
To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments [adds nod to international environment]. Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. However, if incoming information indicates faster progress toward the Committee’s employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated.
When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.
Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Jeffrey M. Lacker; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams. [3 dissenters are no longer voters]
With the Feds being unanimous (without the dissenters), it is increasingly more likely for the current policy path to remain in the scope which Yellen pointed out during her semi-annual testimonies in front of members of the Congress. However, we’ll be watching closely at any subtle changes in the FOMC statement and her tone during the press conference.
Webcast Link For FOMC Press Conference At 2:30pm
With that said, let’s take a look at the latest comments from WSJ’s Hilsenrath, who is known as the “Fed Whisperer”:
(US) Fed Watcher Hilsenrath: It is clear by now officials intend at the March 17-18 meeting to drop the “patience” language from the statement.
The Fed has gotten two important signals in the last couple of weeks: in testimony to Congress, Fed Chair Yellen signaled an inclination to drop patience, and the market took the comments in stride, and Feb’s decline in unemployment rate to 5.5% means the economy is closer to a state of full employment
Therefore, here’s our plan:
- If Feds remove the use of the word “patience”: Market will probably be very positive for the USD, but since it is expected, we probably won’t see too much reaction. However, the key will be in Yellen’s press conference, as she could give out hints on the first rate hike date…
- If Feds keeps most statement the same from Jan. 28 statement (including the “patience” clause): We’ll sell USD as this is a surprise and could mean that Feds are likely to remain accommodating for a bit longer. Risk sentiment will be back and USD could take a hit for the short-term.