Fed expected to remove ‘patient’ this week – NAB

FXStreet (Barcelona) - Tony Kelly, Senior Economist at National Australia Bank, explains that Fed might remove ‘patient’ from its forward guidance in its March meeting, but the probability of a June hike remains mixed.

Key Quotes

“Our call for a while has been that the Fed would start the process of raising the fed funds rate at its June meeting. The improvement in the labour market continues to lend support to this timing. The softening in inflation means that there is a risk that it will happen later.”

“The January FOMC meeting minutes suggested that many members would consider tightening even if inflation was low as long as they were confident that inflation would return to target.”

“Factors that might make them confident, apart from continued economic growth, included stable or rising core inflation (not that likely by June) or for an alternative underlying inflation series (the Cleveland Fed’s median CPI has held up better), or an improvement in market based measures of inflation expectations (there has been some improvement but they remain low), or signs of wage growth (mixed currently but possible by June).”

“Clearly, given these varied considerations, it is not possible to be definitive about timing, but with unemployment almost at what the Fed considers its long-run level, it is hard to see rates remaining at their historical lows for too much longer.”

“Consistent with this, the Fed is expected to remove its ‘patient’ language from its statement in its meeting next week, which will give it the option of tightening from June onwards.”