Afternoon Must-Read: Tim Duy: Quick FOMC Recap

Tim Duy:
Quick FOMC Recap:
“In normal times the Federal Reserve moves slowly and methodically…

…Policymakers were apparently concerned that removal of ‘considerable time’ by itself would prove to be disruptive. Instead, they opted to both remove it and retain it: ‘Based on its current assessment, the Committee judges that it can be patient…. The Committee sees this guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program in October….’

If you thought they would drop ‘considerable time,’ they did. If you thought they would retain ‘considerable time,’ they did. Everyone’s a winner…. The April meeting is still on the table [for a rate increase], although I still suspect that is too early.

Yellen… dismissed falling market-based inflation expectations as reflecting inflation ‘compensation’ rather than expectations… dismissed the disinflationary impulse from oil… indicated that inflation did not need to return to target prior to raising rates, only that the Fed needed to be confident it would continue to trend toward target… unconcerned about the risk of contagion either via Russia or high yield energy debt…. The Federal Reserve… have their eyes set firmly on June… see the accelerating economy and combine that with, as Yellen mentioned, the long lags of monetary policy….

Believe it or not, the Fed is seriously looking at mid-2015 to begin the normalization process. And there is no guarantee that it will be a predictable series of modest rate hikes. As much as you think of the possibility that the hike is delayed, think also of the possibility of 1994.