The December FOMC statement was very much in line with our expectations. The Committee said it would be patient in beginning to normalize rates – leaving indications of the speed of hikes for another day. The FOMC went out of its way to make clear that “patient” does not negate its previous commitment to wait a “considerable time” following the end of QE before raising rates. This was a strategic move to assuage fears that rate hikes might occur much sooner than expected. In all, the Fed delivered what has become the consensus view and sought not to rock the boat. In her press conference, Chair Yellen said that the promise to be “patient” before starting to normalize rates is worth as least two meetings. This means that April 29th would be the earliest possible date for the first rate hike. We are more confident that June looks like the most ripe date for lift-off which means another transition in forward guidance is likely at the March meeting.
The FOMC’s assessment of overall economic activity in the statement was largely unchanged – it continued to describe the economy as growing at a “moderate pace”. December’s Summary of Economic Projections (SEP) reflected this as well, with the central tendency of growth forecasts revised up for 2014, but unchanged for later years. In her press conference Chair Yellen characterized the economy as “strengthening”. The Committee upgraded its assessment of the labour market in the statement to “underutilization of labour resources continues to diminish” from “underutilization of labor resources is gradually diminishing. Risks to the outlook for growth and the labour market were still seen as “nearly balanced”. Unemployment rate forecasts were edged lower for most years in the SEP. There were no references in the statement to foreign.
