Fed watchers are on alert for a possible change in language when the Federal Open Market Committee releases its statement from this week’s meeting on Wednesday afternoon.
Specifically, there’s some debate as to whether the FOMC will drop language about how it “can be patient in beginning to normalize” monetary policy — which would signal that it is getting ready to raise interest rates within the next couple of meetings.
But if the Fed sticks to the same pattern it used the last time it changed the language of this particular passage, “patient” could remain in the statement no matter what.
Back in December, everyone was watching the Fed closely to see if it would replace the phrase “considerable time” in its characterization of the time between the present and the first rate hike. At the time it inserted this “patient” language into the FOMC statement: “Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy.”
But in the next sentence of the statement, the Fed added a sentence that bridged to the previous language, which said that the Fed would keep current interest rates for a “considerable time”:
The Committee sees this guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 per cent 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 per cent longer-run goal…
That was enough to fool some media outlets and trading algorithms, which just did a cursory scan of the text for the old language without having humans to read for meaning.
It’s not out of the question that this could happen again.