Chair Yellen's first post-meeting press conference came across as slightly more hawkish than expected.
Janet Yellen's FOMC statement showed another $10bn taper but the wordy shift from quantitative thresholds to "we'll know it when we see it" qualitative guidance is relatively dovish (despite improved economic outlooks):
- FOMC SEES `SUFFICIENT UNDERLYING STRENGTH' IN ECONOMY;
- FOMC SAYS IT WILL LIKELY REDUCE QE IN `FURTHER MEASURED STEPS';
- FED: LOW TARGET RATE APPROPRIATE FOR CONSIDERABLE TIME POST-QE;
- MORE FED OFFICIALS SEE AT LEAST 1% FED FUNDS RATE END OF 2015;
- FOMC SAYS IT WILL LIKELY REDUCE QE IN `FURTHER MEASURED STEPS';
- FED: LOW TARGET RATE APPROPRIATE FOR CONSIDERABLE TIME POST-QE;
- MORE FED OFFICIALS SEE AT LEAST 1% FED FUNDS RATE END OF 2015;
Most importantly perhaps, if expected, forward guidance is now dead, as it is a confirmed failure:
- FED DROPS 6.5% JOBLESS THRESHOLD FOR RAISING FED FUNDS RATE;
another are some highlights:
- FOMC TO WEIGH `WIDE RANGE OF INFORMATION' ON JOBS, INFLATION;
- FED: 2014 GDP GROWTH OF 2.8%-3.0% VS 2.8%-3.2% IN DECEMBER (lower growth);
- FED: END-2014 JOBLESS RATE AT 6.1%-6.3% VS 6.3%-6.6% IN DEC. (but lower unemployment);
next:
- YELLEN SAYS WEATHER HAS WEAKENED ECONOMY IN FIRST QUARTER;
- YELLEN SAYS MOST ON FOMC SEE WEATHER WEAKNESS DISSIPATING;
Main points after conference according Goldman Sachs:
1. The median participant’s forecast for the funds rate (the “dots”) remained at 0.13% at end-2014, but rose 25bp to 1.0% at end-2015 and rose 50bp to 2.25% at end-2016. The median projection for the longer-run rate remained 4.0%. Only two participants expected that the first hike would come in 2016, down from three in December.
2. The Committee adopted qualitative forward guidance by stating that it currently anticipates the fed funds rate to remain in the current 0 to 25 basis point range "for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored." Looking further ahead, the statement indicated that "even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run." In addition, the statement said that "the change in guidance does not indicate any change in the Committee's policy intentions as set forth in recent statements." We see this set of outcomes on the forward guidance as relatively neutral.
3. The assessment of economic conditions noted slower activity in recent months, but partly blamed the weakness on "adverse weather conditions." The assessment of household spending and business fixed investment was changed from "has advanced more quickly" to "continued to advance." The description of inflation and inflation expectations was unchanged.
4. As overwhelmingly expected, the Committee continued to taper the pace of its asset purchases by $10bn to $55bn/month, beginning in April. An accompanying statement on the New York Fed website indicated no other changes to operating parameters.
5. Minneapolis Fed President Kocherlakota lodged a dovish dissent, noting that the Committee did not express its commitment to return inflation to the 2 percent target strongly enough.
6. With regard to participants’ economic projections, the mid-point of the central tendency of the unemployment rate was lowered by 0.25pp to 6.2% in 2014Q4, by 0.2pp to 5.75% in 2015Q4, and by 0.15pp to 5.4% in 2016Q4. In addition, the longer-run or “structural” unemployment rate was lowered 0.1pp to 5.4%. Real GDP growth was lowered to 2.9% in 2014, 3.1% in 2015, 2.75% in 2016, and 2.25% in the longer run. Changes to core and headline PCE inflation projections were minor. The core PCE inflation projection remained at 1.5% at end-2014, rose a touch to 1.85% at end-2015, and remained at 1.9% at end-2016.
2. The Committee adopted qualitative forward guidance by stating that it currently anticipates the fed funds rate to remain in the current 0 to 25 basis point range "for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored." Looking further ahead, the statement indicated that "even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run." In addition, the statement said that "the change in guidance does not indicate any change in the Committee's policy intentions as set forth in recent statements." We see this set of outcomes on the forward guidance as relatively neutral.
3. The assessment of economic conditions noted slower activity in recent months, but partly blamed the weakness on "adverse weather conditions." The assessment of household spending and business fixed investment was changed from "has advanced more quickly" to "continued to advance." The description of inflation and inflation expectations was unchanged.
4. As overwhelmingly expected, the Committee continued to taper the pace of its asset purchases by $10bn to $55bn/month, beginning in April. An accompanying statement on the New York Fed website indicated no other changes to operating parameters.
5. Minneapolis Fed President Kocherlakota lodged a dovish dissent, noting that the Committee did not express its commitment to return inflation to the 2 percent target strongly enough.
6. With regard to participants’ economic projections, the mid-point of the central tendency of the unemployment rate was lowered by 0.25pp to 6.2% in 2014Q4, by 0.2pp to 5.75% in 2015Q4, and by 0.15pp to 5.4% in 2016Q4. In addition, the longer-run or “structural” unemployment rate was lowered 0.1pp to 5.4%. Real GDP growth was lowered to 2.9% in 2014, 3.1% in 2015, 2.75% in 2016, and 2.25% in the longer run. Changes to core and headline PCE inflation projections were minor. The core PCE inflation projection remained at 1.5% at end-2014, rose a touch to 1.85% at end-2015, and remained at 1.9% at end-2016.
 |
| chart 1. EUR/USD H4, 2014-03-19 |
underlying: EUR/USD
trade level: 1) 1.3892; 2) 1.3929
position: 1) SHORT; 2) SHORT
SL: 1) 1.3877; 2) 1.3882
 |
| chart 2. USD/JPY H4, 2014-03-19 |
underlying: USD/JPY
trade level: 102.354
position: SHORT
SL: 102.821
 |
| chart 3. GOLD H1, 2014-03-19 |
underlying: GOLD
trade level: 1331.65
position: LONG
SL: 1317.87
best regards,
oscarjp
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