The Fed said its word: removed patience, but also said a lot of other things.
The USD is selling off heavily after a statement that saw the removal of forward guidance: the move that paves a rate hike. Why? Here are 4 quick reasons:
- Confidence needed on inflation: Beforehand they seemed more confident. Yellen still sees oil prices as transitory and reaching core inflation, but this confidence goes hand in hand with the previous wording on “patience”.
- Explicit mention of no hike in April: The Fed usually does not limit itself, and this time it does that. One can look at that as opening the door to a hike in June, but this is not the case, and the Fed could also repeat that in the next statement.
- Economy has moderated: this is a bearish turn after bullish views on the labor market. Retail sales, industrial output, durable goods orders and consumer confidence are falling.
- Median FFR has been moved down: from 1.125% in December to 0.625 now. This may the most important factor. A difference of 50 basis points is two rate hikes and could be the difference between a hike in June and in September.
Yellen did manage to balance a small part of the bearishness, but just a bit.After the some consolidation as she began speaking, the dollar resumes its falls.
More:
In our latest podcast, we discuss QE: Who got it right, Krugman or the Gold bugs?
Share
