The Fed is coming out with its latest monetary policy statement today at 2 PM. Then at 2:30 PM, Janet Yellen will give a press conference to discuss the Fed’s moves.
Parsing Fed statements is always a tricky exercise, but if you want to play at home, there are basically two things to watch today. And anyone can do them.
The first is to check out the official statement for the two word phrase: “Considerable time.”
This was the key paragraph from the latest Fed statement, in July. Note the highlighted line:
To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate. In determining how long to maintain the current 0 to 1/4 per cent target range for the federal funds rate, the Committee will assess progress–both realised and expected–toward its objectives of maximum employment and 2 per cent inflation. This assessment will take into account a wide range of information, including measures of labour market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. The Committee continues to anticipate, based on its assessment of these factors, 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 per cent longer-run goal, and provided that longer-term inflation expectations remain well anchored.
What the Fed is saying is that after QE is wound down, ultra-low rates will stick around for a “considerable time” which some Fed watchers assume to mean a period of about 6 months. There’s some speculation that the Fed could drop or alter the phrase, which would be a hint that maybe interest rates are coming sooner than expected.
So immediately when the statement comes out, check to see if that’s there.
The second thing to check out is the dot plots. Every few meetings, the Fed governors are all asked to enter in their forecasts of where they see short-term interest rates going in the future. The public isn’t told which FOMC governor is associated with which dot, but overall the give a hint at how the Fed sees the future unfolding.
So anyway, keep this chart handy, and then when the new one comes out today, you can see if more FOMC governors are hiking their estimates of where interest rates will be at the end of next year and 2016.
If you watch for “considerable period” and check out the dots, you’ll know the direction the Fed is heading.