Is ‘Patient’ Longer Or Shorter Than ‘Considerable Time’?

BLOG VIEW: Yesterday, we got another muddled, vapid, near-meaningless statement from the Federal Reserve as to when it might raise short-term interest rates. I was going to post the usual, obligatory article based on Federal Reserve Chair Janet Yellen's press conference, but I decided to wait and digest some of what she said overnight.

And to no avail: I woke up this morning and still didn't know what to make of it. The Federal Open Market Committee kept ‘considerable time’ in its statement but added the word ‘patient’ – and to be honest, I just don't know what it means. Is ‘patient’ longer or shorter than ‘considerable time?’

‘Based on its current assessment, the committee judges that it can be patient in beginning to normalize the stance of monetary policy,’ the statement reads. ‘The committee sees this guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program in October, 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.’

The idea, of course, is not to ‘spook’ the markets by implying the rate increases are imminent.

‘However, if incoming information indicates faster progress toward the committee's employment and inflation objectives than the committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated,’ the statement adds, using what has now become boilerplate language. ‘Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated.’

At least Yellen was a little more precise when she told reporters that the Fed is likely to hold rates near zero at least through the first quarter. She said the committee expects to maintain its current policy ‘for at least the next couple of meetings,’ which means basically through February.

She was also a little more detailed in terms of defining the economic indicators the Fed needs to see before it makes any decision – namely that the unemployment rate needs to decline some more, wages and personal income need to increase, and inflation needs to rise above 2%.

The Fed is no doubt in a delicate situation: Now that its bond-buying program has come to an end, it has to revamp its economic policy and transition to new tools to keep the economy stable. Making that transition without roiling the markets, however, is tricky. That, more than likely, is why the ‘considerable time’ phrase was left in and ‘patient’ was added.

I agree that in some respects, things are looking better: Earlier this month, the Labor Department reported that non-farm payrolls rose by 321,000 in November, the biggest increase in almost three years, while the Commerce Department reported that retail sales increased 0.7%, the biggest gain in eight months. Still, wages are not keeping up with inflation, the housing market is not bouncing back as it should, and there is plenty of global economic ‘unrest’ to make the markets jittery.

Yellen said during the press conference that the committee discussed the situation in Russia at this week's policy meeting and agreed it would have little impact on the U.S.

All I can say is it will be interesting to see whether any of the other global risks – such as falling oil prices or the start of a new recession in Japan – result in a decision coming sooner, or if we will have to be ‘patient’ for a ‘considerable time.’

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