Fed wants flexibility to hike in June, but also the flexibility to wait – Danske

FXStreet (Barcelona) - Allan von Mehren, Chief Analyst at Danske Bank, summarizes the key points from Yellens’ testimony regarding Fed’s forward guidance.

Key Quotes

“Overall this was quite a neutral statement by Janet Yellen in her semi-annual testimony to Congress. She does not give too much away in terms of what has to be in place for lift-off.”

“The most interesting part is what she says about forward guidance:

a) She repeats that ‘patience’ means rates are unlikely to be changed at the next couple of meetings.

b) If forward guidance is changed (hence ‘patience’ removed) it does not necessarily mean rates will be raised in a couple of meetings. Instead, it means that conditions have improved to the point ‘where it will soon be the case that a change in the target range could be warranted at any meeting’.”

“So if ‘patience’ goes in March it would mean that meetings from June and onwards are possible lift-off dates – also July, which is without a press conference. This deals with the concern that if they remove the word ‘patience’ in March then the market will see it as an indication they will hike in June.”

“They probably want the flexibility to hike in June, but also the flexibility to wait.”