No hikes in next two meetings, but we’ll see after that. June still on the agenda. It will be a meeting by meeting assessment. They will change forward guidance (aka “patience”) before moving.
USD is higher: EUR/USD dips below 1.13, USD/JPY moves closer to 120 and GBP/USD slides to 1.54. AUD/USD fell below 0.7750, NZD/USD to 0.7425 and USD/CAD jumped to 1.2660. After the initial move, we’re seeing a reversal.
Update: here is more about the reversal – Yellen is being Yellen.
More: “patience” means liftoff unlikely for couple of meetings. Balance sheet reduction will mainly be made through stopping the reinvestment process. It will be done in a gradual and a predictable manner, says Yellen.
A change in forward guidance does not imply an imminent in the next two meetings. It does mean that a rate hike could come in one of the next meeting, but only if the data warrants this.
The FOMC intends to change monetary policy via changing the interest rate and not by changing the balance. The committee has the tools to raise rates when appropriate to do so, and maintain controls as policy continues to firm.
The committee will also use additional tools as needed. As conditions evolves, the Fed will phase out the additional tools. It’s the committee’s intention to hold no more securities than necessary, and primarily treasuries.
Even after inflation and employment reach targets, it will probably be necessary to maintain loose policy, because of “residual effects” of the crisis.
Yellen continues seeing lower oil prices as a positive for the US economy. In addition, GDP is strong enough to lower jobless rate. Both factors will eventually lift inflation.
There has been considerable improvement in the labor market. Indeed, the last report looks very promising, including wage growth.
On the downside, Yellen says that international developments pose risks to outlook for the US. Inflation is expected to decline in the near term but recover towards 2% in the medium term. They will continue to monitor inflation closely.
These are the prepared remarks that she reads out to lawmakers.
At the same time, the CB consumer confidence dropped to 96.4 points, weaker than 99.6 expected and 103.8 seen in January.
More: Time To Buy The USD Index – BofA Merrill
The recent rate statement released by the Fed was relatively hawkish, despite repeating patience on raising the rates. However, the minutes were somewhat dovish.
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