by Calculated Risk on 3/18/2015 07:01:00 PM

From Tim Duy: Yellen Strikes a Dovish Tone

The FOMC concluded its two-day meeting today, and the results were largely as I had anticipated. The Fed took note of the recent data, downgrading the pace of activity from "solid" to "moderated." They continue to expect inflation weakness to be transitory. The risks to the outlook are balanced. And "patient" was dropped; April is still off the table for a rate hike, but data dependence rules from that point on.

Growth, inflation and unemployment forecasts all came down. Especially important was the decrease in longer-run unemployment projections. The Fed's estimates of NAIRU are falling, something almost impossible to avoid given the stickiness of wage growth in the face of falling unemployment. The forecast changes yielded a downward revision to the Fed's interest rate projections. In addition, the strong dollar was clearly on the Fed's mind. Federal Reserve Chair Janet Yellen often referred to the dollar and its impact on growth in the press conference, much more than I expected.
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Bottom Line: Yellen does it again - she moves the Fed both closer to and further from the first rate hike of this cycle. By moving toward the markets on the path of rate hikes, the Fed acknowledges that they are eager to let this recovery run on. Moreover, they proved that they are in fact data dependent by moving policy in the direction of the data. Overall, Yellen has managed the transition away from what the Fed came to see as excessive forward guidance just about as well as could be expected.

Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 293 thousand from 289 thousand.

• At 10:00 AM, the Philly Fed manufacturing survey for February. The consensus is for a reading of 7.0, up from 5.2 last month (above zero indicates expansion).