With the U.S. Federal Reserve finishing up its latest policy meeting today, the consensus appears to point to continued “patience” with regards to an inevitable short-term interest rate hike.
The word “patient” was arguably the biggest takeaway from the minutes of the Fed’s December policy meeting, where Chairwoman Janet L. Yellen used this word to describe the Fed’s approach to timing its first rate hike since 2006. At that time, economists and strategists had taken this to mean that the Fed will not be implementing any rate hike until mid-2015 at the earliest.
Yellen, for her part, said that “patient” simply means no confirmation of a future rate hike for the next couple of Federal Open Market Committee meetings. But as Yellen will not be holding any press conferences after the January FOMC meeting ends today, that leaves investors with no choice but to analyze the written minutes, which may be a bit tricky as compared to analyzing verbally articulated comments.
Still, the common factor remains the same – language will be what matters the most when analyzing the minutes and determining when the Fed will likely increase rates.
Recently, most economists were on the same page, predicting a rate increase by mid-2015, possibly June at the earliest. But with reduced oil prices and other variables having dropped inflation farther below the Fed’s targets, some have revised their forecasts and are now expecting the first rate hike to occur by late 2015, possibly between September and December.
Morgan Stanley, in fact, had revised its prediction to March 2016. And with inflation dropping, the Fed may have no choice but to wait on a rate hike a little longer. According to Brown University economics professor David Wyss, “standing pat is the best thing to do right now” as far as interest rate hikes go.