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Friday, February 06, 2015

Duy on the Fed and Jobs Report

by Calculated Risk on 2/06/2015 07:56:00 PM

First, from Jon Hilsenrath at the WSJ: Jobs Report Means Fed Could Still Raise Rates in June

Two important milestones now loom for the Fed. First, Fed Chairwoman Janet Yellen is due to deliver her semiannual testimony to Congress later this month. She’ll use that to update lawmakers and the public on the economic outlook.

Second, Fed officials will decide at their March meeting whether to change or drop the language in their policy statement pledging to “be patient” in deciding when to raise their benchmark short-term interest rate from zero.
And from Tim Duy: Upbeat Jobs Report
... I don't think Yellen intended to imply that "patient" always means two meetings. Perhaps I just have too many memories about "considerable time" first meaning six months and then not. Plus, the Fed is aware of its past history, and in 2004 "patient" turned to "moderate" just one meeting before the hike. But it was technically the second meeting after "patient" was dropped, so is that two meetings? Also, as we saw with the "considerable" to "patient" transition, the Fed has its own unique way of wordsmithing that can deliver something for everyone. And finally, Yellen has the press conference to redefine her interpretation of "patient." But maybe I am wrong. In any event, I am not taking a fixed stand on what "patient" means until the press conference.

Bottom Line: The US economy has very real momentum on its side at the moment. It is more resilient to shocks than commonly assumed. This isn't 2011. June is still on the table.
CR Note: My understand was "patient" meant at least two meetings, perhaps more. So removing "patient" at the next meeting would mean June is possible.