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.
OutlookWe expect ‘patience’ to be removed in March to give the Fed flexibility to hike in June. We also continue to look for a hike in June based on continued robust employment gains and decent GDP growth rates. Risks are, however, still skewed towards a hike later (July or September).
Yellen’s testimony and our view that the Fed will begin lift-off in June supports our call of a broadly stronger USD over the coming 3-6 months. In our view, the USD should strengthen as long as we are waiting for the first rate hike, particularly versus currencies which are backed by ultra-loose monetary policy, such as EUR, JPY, CHF and SEK. We forecast EUR/USD at 1.12 in 1M, 1.11 in 3M and 1.10 in 6M, with USD/JPY expected to shoot higher to 120 in 1M, 124 in 3M and 125 in 6M.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.