Wednesday, March 19, 2014

Yellen Speaks, No Parsing Needed: ‘You Have to Read This Statement as Risk Off’

From MoneyBeat:
The Federal Reserve reduced its bond-buying program by another $10 billion a month and altered its guidance on the likely path of interest rates. The moves prompted analysts to question whether the new guidance left too much to interpretation.

In its policy statement, the Fed said explicitly that it likely would keep short-term rates lower than normal, even after inflation and employment return to their longer-run trends. Its latest projections, also released Wednesday, showed officials coalescing around a 2015 liftoff for interest rates.

Stocks dropped immediately after the statement was released, with the Dow Jones Industrial Average falling more than 150 points.

Here’s a roundup of analyst and economist reactions following the statement:
Steven Englander, currency strategist at Citigroup: “You have to read this statement as risk-off. Other than the very short-term bounce from the bad weather of this winter, supply-side projections are weaker, not stronger, but rates projections are higher. Unless Yellen unwinds this impression at the press conference, it has to be read as U.S. rates backing up because of less dovishness, not as an indication of confidence in the U.S. economy.”

Adrian Miller, director of fixed income strategy at GMP Securities:“The Fed has spoken and it seems the bond and equity market didn’t like what they saw. The Fed expectedly toned down its view on the economy by adjusting the first sentence of the first paragraph to reflect a slowing in growth due to the weather. At the same time the Fed acknowledges recent trends in employment has been mixed, yet continues to believe the labor market continues to improve. At the same time the Fed also gave a nod to the housing market’s recent weakness…With the bond market fixated on the committee’s growing hawkish views as to when the first rate hike may occur, the short end is lifting aggressively even as the long end is also weakening notably.”...MORE