18 Dec 2014
Reading between the lines…FOMC - ING
FXStreet (Guatemala) - Rob Carnell, analyst at ING Bank NV noted that 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”.
Key Quotes:
“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? A simplistic interpretation is that it will now be about 6 months until the Fed begins to hike the Fed funds target range.
"This would be consistent with Fed funds futures and market participants view that rates will begin to go up in July 2015. We would caution against reading such a simplistic interpretation, however".
"For starters, inflation at that point, and also inflation expectations which typically follow or track actual inflation (there is no predictive power in expectations), will be exceptionally low (close to zero) at this time, and we think it will be very hard for the Fed to simply “look through” such low inflation and hike rates as they appear to have done with the Russia crisis this time”.
Key Quotes:
“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? A simplistic interpretation is that it will now be about 6 months until the Fed begins to hike the Fed funds target range.
"This would be consistent with Fed funds futures and market participants view that rates will begin to go up in July 2015. We would caution against reading such a simplistic interpretation, however".
"For starters, inflation at that point, and also inflation expectations which typically follow or track actual inflation (there is no predictive power in expectations), will be exceptionally low (close to zero) at this time, and we think it will be very hard for the Fed to simply “look through” such low inflation and hike rates as they appear to have done with the Russia crisis this time”.