Grand Central: As Fed Officials Begin Blackout, Confidence Grows They Can Drop Patience Assurance

Federal Reserve officials enter their self-imposed blackout period today, in which they stop making public comments about the economy and monetary policy and engage in intensifying discussions about the statement that will come out of their policy meeting next week. It is clear by now officials intend at the March 17-18 meeting to drop the assurance that they’ll be patient before raising short-term interest rates.

Cleveland Fed President Loretta Mester effectively reiterated her support for such a move in comments Monday, saying she wanted to have the option to raise rates in June. To have such an option, officials need to remove the patience assurance in March.

The Fed has gotten two important signals in the last couple of weeks which reinforce its confidence about removing the assurance

First, Fed Chairwoman Janet Yellen signaled in her testimony to Congress an inclination to drop patience, and the market took the comments in its stride. Officials had been worried that interest rates would jump and stocks tumble when they dropped the patience assurance, effectively bringing forward interest rate increases before the Fed is actually ready to raise rates. When the market yawned, the Fed got a signal the coast is clear.

Then on Friday the Labor Department reported another drop in the unemployment rate to 5.5%, meaning the economy is closer to a state of “full employment” when more people are employed and inflation bubbles up. It means incoming economic data are supporting the Fed’s forecast for the economy, another reason to take a small step in the long march move toward rate increases later this year.

WSJ

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Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

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