For years the FOMC had kept the language “considerable time” language in the FOMC policy statement. The problem, no one knew what it meant. The Fed would not tell anyone what it meant. We could only guess as to what the Fed meant as each time they were asked to the meaning of “considerable time” they would give a very ambiguous answer leaving us even more confused.
From the July FOMC statement: “The Committee continues to anticipate… that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.”
This reminds me of a famous Alan Greenspan quote where he stated “I guess I should warn you, if I turn out to be particularly clear, you’ve probably misunderstood what I’ve said.”
Considerable time would typically mean a large extent or degree of time. They used this language to make it very easy to modify monetary policy if they needed it. It was also code to the GS, JPM and Citi financial institutions that they had time to continue to reallocate positions. When they removed the language in December of 2014, they replaced it with the language “patience”. They promised to be patient in raising interest rates. One could argue that there is little difference in the language of “considerable time” or “patience”. However, knowing fed speak as I do, it is a signal to the same financial institutions that they are getting closer to raising interest rates. They do not want to cause a panic on Wall Street or slow down American consumer spending. In essence, they basically tell us that we are not smart enough, educated enough, or know enough to handle the truth of their constant manipulation and guesswork in their attempts to parlay economic theory into economic reality.
The question for this week in all markets is whether or not the Fed will remove the “patience” language in the policy statement. I do not see the removal of the language in this week’s policy statement as I believe it will be one of the next two policy statements that will remove the language. If I had to put odds to the language being removed, it would be in the 20% range. Regardless of whatever happens with the language, I see about a 30% probability rate hike in July with the likelihood increasing as we get closer to my original projection two years ago of the summer-fall of 2015 of the first increase in interest rates since 2006.
The Forex Report will be “patient” for a “considerable time” with calls this week as we have the FOMC on tap for Wednesday.
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