- The latest FOMC statement has removed the term “patient” (in normalizing interest rates)
- The term “appropriate” (in raising Fed funds rate) is now used in place of patient
- 2015 interest rate expectations by the Fed have also been massively lowered to 0.5% - 0.75% (Dec: 1% - 1.25%)
- US economic growth forecast and inflation outlook were also lowered
- Yellen said “just because we removed the term “patient” doesn’t mean we (the FOMC) are going to be impatient (in raising rates)”
- Yellen also said that a April rate hike is unlikely, but after that a rate raise may be on the cards
- No dissents from any FOMC officials in the monetary statement
- Dollar fell, gold and equities rose
What This Means For Global Markets
- This is a massive statement of intent by the FOMC; for the doves, this is as big a triumph as it gets.
- There was almost no hint of hawkishness present in the monetary statement; the dovish makeup of the FOMC is having a huge say in how US interest rates pan out.
- The hawks will find it difficult to force themselves back into the equation after the interest rate forecast was cut by a resounding 50 basis points.
- A 50bp lowering of the end-2015 rate forecast means in the remaining 6 FOMC meetings of 2015, Fed officials need only conduct interest rate hikes ONCE or TWICE.
- As such, a rate hike in June now appears too early; a September rate hike now looks to be the earliest time to raise rates.
- No dissents in the FOMC statement suggests that all officials agree that the US economy is not ready for a rate hike.
- The outlook for economic growth and inflation have also been lowered, further dampening hopes of a June rate hike.
- This thorough win for the doves mean for the rest of the day and possibly till end of March, the dollar will likely weaken while equities and gold could embark on a moderate rally.
In a nutshell, the Fed is saying: Patience is a virtue, whether the term is present or not. Don’t count on an early rate hike.
Source: PhillipCapital Future
