Unanimous Fed Vote Sends Clear Message to Market

The unanimous backing Federal Reserve Chair Janet Yellen got for the Fed’s first rate hike since the financial crisis let her deliver a clear message: Don’t expect further rate hikes for a while, and when we are ready, we’ll tell you.

Yellen’s confident and measured performance – she even managed a joke about the Fed’s forecasting record – came as she ended the “extraordinary” measures that revived the U.S. economy from the worst recession since the 1930s.

Clear communication has not been a strong suit at the U.S. central bank in recent months, with top Fed officials talking at cross purposes and sending mixed signals about when the benchmark interest rate should rise. But when it mattered the 69-year old economist guided markets to a soft landing and convinced skeptical rate setters to back the consensus.

Indeed, before the Fed’s last meeting, an overwhelming majority of Wall Street firms told the Fed that its communications were ineffective or nearly so, according to the New York Fed’s most recent survey.

Stocks even managed a rally on the Fed decision as Yellen corralled doubters like Fed governors Lael Brainard and Daniel Tarullo, as well as the dovish chief of the Chicago Fed, Charles Evans, to sign on to the decision to raise short-term interest rates.

Even projections for future rate hikes have coalesced, with nearly all Fed officials agreeing within a quarter of a percentage point on where the benchmark rate should be by the end of next year. In September views were much more widely dispersed.

“Definitely a communications coup,” said Scott Anderson, chief economist for Bank of the West in San Francisco.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
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