FOMC Forecast: Removal of “Patient” Doesn’t Signal Committee “Impatience”

Economic Pulse
March 19, 2015
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Yesterday’s announcement from the Federal Open Market Committee (FOMC) affirmed the Committee’s ambivalence regarding the timing of the first rate hike. Importantly, while the phrase, “the Committee judges that it can be patient in beginning to normalize the stance of monetary policy” was removed, yesterday’s statement noted that “the change in forward guidance does not indicate that the Committee has decided on the timing of the initial increase in the target range,” adding that “an increase…remains unlikely at the April FOMC meeting.”

In its statement, economic growth was described as having “moderating somewhat”—a distinct change in tone from the January statement where economic activity was characterized as “expanding at a solid pace.” The Board revised its growth, inflation and unemployment rate forecasts lower, and also cut its average forecast for the year-end Fed Funds target by a sizable 35 bps. With a stronger U.S. dollar serving as a form of policy tightening, yesterday’s statement also included a more specific reference to “financial and international developments” by noting weaker export growth—as much a product of slower growth abroad as the dollar’s strength—and likely one factor contributing to the reduction in the target rate for 2015.

The bond market cheered the announcement, with yields on the 10-year Treasury note sinking to 1.92%, marking the first time all month that yields ended the day below 2%. And for those who see a June rate hike as a fait accompli? From the Chairwoman’s prepared press conference remarks: “Let me emphasize again that [the] modification of the forward guidance should not be read as indicating that the Committee has decided on the timing of the initial increase in the target range for the federal funds rate. In particular, this change does not mean that an increase will necessarily occur in June, although we can’t rule that out.”

Table 1. Economic Projections of Federal Reserve Board Members and Presidents, March 2015

Economic Projections of Federal Reserve Board Members and Presidents, March 2015
  • Source: Federal Reserve
  • Note: Excludes the three highest and three lowest projections for each variable in each year (except average and median Fed Funds rate figures, which include all participants.) Bolded figures are March 2015 forecasts (versus December 2014).
    Arrows (↑,↓ and ≈ ) indicate direction of change in forecast from December 2014 to March 2015.
    Real GDP and inflation projections are from Q4 of the previous year to Q4 of the year indicated. PCE inflation refers to the price index for personal consumption expenditures. Projections for the unemployment rate are for the average rate during Q4 of the year indicated.