25 Feb 2015
Yellen helped clarify how forward guidance could evolve - Nomura
FXStreet (Bali) - According to Nomura US Economists, Fed Chair Yellen’s comments on Tuesday helped clarify how forward guidance could evolve before liftoff.
Key Quotes
"We mentioned in our preview of Federal Reserve Chair Yellen’s testimony to Congress that we thought she would try to use the hearing as an opportunity to give the FOMC more flexibility in its path for monetary policy. Yellen did just that today in her testimony before the Senate Banking Committee. However, she did not settle the uncertainty around when “patient” will be removed from the FOMC’s forward guidance or give additional clues as to the timing of liftoff."
"Nevertheless, Chair Yellen’s comments helped clarify how forward guidance could evolve before liftoff. In her prepared remarks, she noted that the Committee judged at its January meeting that it can be “patient” in beginning to raise the federal funds rate as inflation has remained well below the 2% target and there is still room for improvement in the labor market."
"She then went on to say that the FOMC would revise its forward guidance before reaching a time when the Committee will “begin considering an increase in the target range for the federal funds rate on a meeting-by-meeting basis.” (She also noted that economic conditions would have to be improving at a pace expected by the Committee.) Yellen then stated that a modification in the forward guidance did not necessarily mean that the Committee would increase the “target range in a couple of meetings.”
"This suggests that when the FOMC does decide to remove “patient” from its forward guidance, it doesn’t necessarily mean that the Committee will raise interest rates on a fixed schedule, but rather that it has reached a point where economic conditions have improved enough for the Committee to consider a rate hike at any meeting. In our view, this gives the FOMC additional flexibility in how it conducts its policy and, as such, we now believe it’s a toss-up as to whether or not it removes “patient” from its policy statement at its March meeting."
Key Quotes
"We mentioned in our preview of Federal Reserve Chair Yellen’s testimony to Congress that we thought she would try to use the hearing as an opportunity to give the FOMC more flexibility in its path for monetary policy. Yellen did just that today in her testimony before the Senate Banking Committee. However, she did not settle the uncertainty around when “patient” will be removed from the FOMC’s forward guidance or give additional clues as to the timing of liftoff."
"Nevertheless, Chair Yellen’s comments helped clarify how forward guidance could evolve before liftoff. In her prepared remarks, she noted that the Committee judged at its January meeting that it can be “patient” in beginning to raise the federal funds rate as inflation has remained well below the 2% target and there is still room for improvement in the labor market."
"She then went on to say that the FOMC would revise its forward guidance before reaching a time when the Committee will “begin considering an increase in the target range for the federal funds rate on a meeting-by-meeting basis.” (She also noted that economic conditions would have to be improving at a pace expected by the Committee.) Yellen then stated that a modification in the forward guidance did not necessarily mean that the Committee would increase the “target range in a couple of meetings.”
"This suggests that when the FOMC does decide to remove “patient” from its forward guidance, it doesn’t necessarily mean that the Committee will raise interest rates on a fixed schedule, but rather that it has reached a point where economic conditions have improved enough for the Committee to consider a rate hike at any meeting. In our view, this gives the FOMC additional flexibility in how it conducts its policy and, as such, we now believe it’s a toss-up as to whether or not it removes “patient” from its policy statement at its March meeting."