The March 19, 2014 FOMC Meeting will be the first official meeting for Janet Yellen as the chair of the FOMC, and to complicate matters, this is the meeting with a Press Conference, where Yellen will have the pleasure of being interrogated by local media members on Fed’s monetary policy and the pace of tapering. Of course, the taper is expected to continue and there may also be some changes to the forward guidance (according to a string of comments by other Fed officials ahead of the FOMC Meeting), including a possible elimination of the 6.5% unemployment threshold. Comments by a number of Fed officials in recent weeks suggest that, despite the recent turmoil in some emerging markets, the Ukraine crisis, and the softer news on activity at home, the Fed will stick to its timetable.
If it were up to Bernanke, who spoke on the 7th of March after the better than expected Non-farm Payroll report was released, we’ll probably see very little change in the upcoming FOMC statement, here’s a quick summary of Bernanke’s comments:
Of course Bernanke no longer has to worry about the market taking his comments out of context, but in a way his words also confirmed that tapering is likely to continue as planned, so the main focus of the FOMC meeting will probably be on the potential changes in forward guidance, and here is a quick summary of what was said recent by Fed officials:
As we can see from above comments, some members are calling the forward guidance outdated while others are calling for a change by the time 6.5% Unemployment is reached. Bernanke is suggesting more communication by the Feds is better than less, and Yellen is open-minded (according to Pianalto), but ultimately there isn’t a sense of urgency at this meeting for the Feds to modify its forward guidance, not when the unemployment rate is back up to 6.7%.
If FOMC were to drop the 6.5% threshold for Unemployment, we should see some selling pressure on the USD, and if the FOMC were to add a lower bound of CPI, such as 0.7%, in order to increase asset purchases, then we should see more accelerated selling on the USD. I really don’t see much upside for the USD unless Yellen were to increase tapering by $20B instead of $10B.
I guess it’s a can of worms that Yellen will probably postpone to the next meeting, but if there are any changes to the forward guidance, they are more likely USD negative.
Is Yellen Asking WWBD (What Would Bernanke Do?)
March 18, 2014 by Leave a Comment