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Yellen’s Fed Ready to Wean Market of Central Bank Guidance

Should the Federal Reserve this week jettison a promise to remain “patient” about raising interest rates, as anticipated by economists, the omission will mark the end of an era in Fed communications policy and could usher in a period of greater market volatility.

Beginning in June, and for the first time since 2008, officials would be making rate decisions meeting-by-meeting, based purely on the data in front of them, rather than committing themselves to keeping borrowing costs low.

While Fed Chair Yellen wants to wean investors from relying on central bank guidance on the future path of policy, she wants to avoid an excessive rise in bond yields that could sap growth.

“They want to normalize policy, and one part of normalizing is to inject some uncertainty over what the central bank will do,” said Roberto Perli, a former Fed official who is now a partner in Washington for Cornerstone Macro LLC. “Still, they don’t want the markets to go haywire.”

Almost 90 percent of economists surveyed by Bloomberg predict officials will drop the “patient” pledge from their statement released after a two-day Federal Open Market Committee meeting ends on Wednesday. Some 45 percent saw this as a step toward a June increase in rates, which have been held near zero since December 2008, according to the poll of 49 respondents conducted March 12 and 13. Thirty-seven percent saw rate liftoff in September.

via Bloomberg [1]

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Alfonso Esparza

Alfonso Esparza [6]

Senior Currency Analyst at Market Pulse [7]
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza
Alfonso Esparza

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