Rate Snapshot: Fed removes 'patient' but isn't impatient about raising rates

by 19 Mar 2015

By David Shirmeyer, CEO at Sigma Research

Data dependent. Patience is out as markets expected. We got it right, the Fed will continue to be data dependent rather than lead markets by the nose with any time frames for an increase. The economy is not as strong as the Fed wants and inflation is way down the line according the Fed’s projections. This is the first sentence of the policy statement released: “Information received since the Federal Open Market Committee met in January suggests that economic growth has moderated somewhat.”

In the last policy statement the FOMC said the economy was improving, now it has moderated according to the data, as we noted this morning. Everything is “moderating”; the Fed likes the improvement in employment but is not convinced yet that it is good enough to increase rates now and in June, now the lemmings are running amok again expecting a rate increase in September---not going to happen though, we still hold no increases this year. DATA DEPENDENT AND IMPROVEMENT IN EMPLOYMENT IS THE TARGET FOR THE FED.


Another sentence of interest: “The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced. Inflation is anticipated to remain near its recent low level in the near term, but the Committee expects inflation to rise gradually toward 2% over the medium term as the labor market improves further and the transitory effects of energy price declines and other factors dissipate.”

Define medium term on inflation outlook, if ‘medium term’ is defined as 2 yrs then it jives with the data below that the Fed released today saying inflation is expected to stay below 2.0% through 2016. In the December projections the Fed data called for inflation this year between 1.0% to 1.6%, in the data today marked down to 0.6% to 0.8%. Another tidbit; “The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.”


As far as I can see the FOMC has done a turnabout from the policy statement in January. At the last meeting the decline in oil prices were characterized by Yellen to be “transitory” now in her press conference she is dissing transitory when she spoke about inflation and the implications of lower oil prices that are not likely to increase in the ‘medium’ term. Since the beginning of this year most all of the Fed’s forecasts and expectations have changed and its back to data dependent instead of a specific target.

The takeaway is the Fed is admitting that it has little confidence about how the economy will perform this year---so markets are back to where we were in terms of anticipating when the Fed may stat the lift-off; the Fed has walked away frm leading markets to any specific dates as has been the case for the last six weeks.


The Fed is as confused as investors and economists that continue to miss the boat using metrics that were valid until the financial collapse in 2008, it was quite evident in the policy statement and Yellen’s press conference Wednesday afternoon. The U.S. economy is slowing down based on the data since January.

There will be no rate hike this year, we haven’t changed that outlook. Yellen appeared a little nervous at her press conference this afternoon; since the statement has rallied stocks and dropped interest rates she didn’t get the heat that she might have; the Fed and economists don’t know any more about the future of the economy than my puppies.


Today weekly claims at 8:30 expected up 4K to 293K. At 10:00 March Philly Fed ndex expected art 7.0 frm 5.2 and February leading economic indicators expected up 0.3%.


All of our technical models are now solidly bullish. The rally today remained mostly in lenders’ hands and didn’t make it down to LOs and private lenders. Re-pricing was minor compared to the MBS market---at least so far. If tomorrow’s prices are lower as we expect on the open, today’s 80 bp MBS improvement will vanish before anyone at the retail level sees it.

Lenders are reaping nice profits but not passing all of it along. Look for volatility to continue today and Friday, the DJIA had a 300 point range.  That said, the trend now is for lower rate, we can’t discount that the 10 will drop to 1.70%, the previous low at the beginning of Feb.


Another paraprosdokian; If I agreed with you, we’d both be wrong.