Wednesday, December 17, 2014

BREAKING Fed Changes Monetary Policy Language

In the first sign that the Federal Reserve is preparing to start to raise interest rates in 2015, it has removed from its forecast the words that it will keep low interest rates for a “considerable time."

In new language, the Federal Open Market Committee  the monetary policy setting committee of the Fed,said instead that it can be "patient” in judging when to start raising rates.

This strongly suggests the Fed is looking towards the summer of 2015 as the timing for a first rate rise.

That said, the  FOMC forecast a slower pace of rate rises in 2015 and 2016. Instead of expecting interest rates of 1.25 to 1.5 per cent by the end of 2015, the FOMC now expects rates of 1 to 1.25 per cent.

BOTTOM LINE: The Fed has no clue as to how price inflation could accelerate in the months ahead (Once the oil price stops falling).


Dow surging more than 300 points as market takes Fed change to "patient" from "considerable time," as a positive. The Fed move was not exactly unexpected. Go figure.

I wrote in the EPJ Daily Alert last week:
Fed vice-chairman] Fischer is probably thinking about a first rate hike in the summer, this means either at the June 18-19, 2015 meeting or at the July 30-31, 2015.


  1. Change? Yea. Talk about rate hikes and never do them. That is the policy for the next five years. At least.

  2. Whose to say that patient isn't longer than a "considerable period of time?" Yes, she changed the language, but not the monetary policy. It's still 0% interest rates as far as the eye can see (and probably forever until a crisis). It's a sad state affairs about our economic thinking, and shows just how crazy the world has become when the entire stock market hinges upon what synonyms of the same word that one person is going to use.

  3. Glad to see I am not the only one who believes that the FED will not raise rates until a crisis shows up to the party. But by then it will be too late.


  4. The "considerable time" phrase remains in this most recent statement. It simply added that they would be patient and then said that their patience is consistent with keeping rates at zero for a considerable time as they said in the previous statement. It's semantics, and I can't believe people think it means anything significant. Bottom line: the fed will raise rates if they think the market will stay at elevated levels afterwards. They will ease when the market begins to fall too far; i.e. 15-20%. If they have to do QE again to keep the market from entering a bear market, they will. We saw the Fed's colors in '08, '09. BTW, as of yesterday the fed funds rate has continuously been at 0-.25% for six years.

    1. They are simply quoting the "considerable time" from their last statement as a reference point. It will be completely gone in their next statement.The actual new view is that they will be "patient." Which is not semantics to them. It means they are getting closer to cutting rates---otherwise they wouldn't have changed anything.