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Fed: Explaining patience – Nordea Markets

Anders Svendsen, analyst at Nordea Markets, suggests that the Fed Chair Powell is likely to explain at press conference following next week’s meeting, what is meant by the recent comments by most FOMC members that have been on the wires, promising patience and data dependence since the December meeting.

Key Quotes

“The Fed will keep rates on hold at Wednesday’s meeting and focus all attention on communicating patience and data dependence in the statement and at the press conference.”

“Patience  most likely means that the Fed is in no hurry to follow the dot plot’s two rate hikes this year. Core inflation is close to target, full employment was reached a while back, but wage growth is not too high, and the policy rate has already reached the lower end of the FOMC members’ range for neutral. There is no rush and no reason to tighten too much or too fast.”

“Data dependence  is another way of saying that the Fed is not yet convinced that markets are right, fearing a severe slowdown or even recession, but will let incoming data decide who is right. If market fears are proven correct, then the Fed is probably done hiking and will soon consider easing. If growth assumptions in the dot plot are proven correct, then the Fed will most likely hike twice this year and once next year.”

“Fed’s balance sheet run-off:  Markets will be listening carefully when it comes to the pace of balance-sheet reductions, currently at a maximum of 50bn per month.”

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