The Fed Drops ‘Patience’ – Is It Closer to Hiking Rates?



Fed drops “patience”

The Federal Reserve, or Fed, dropped “patience” from its statement. As a result, stocks surged while yields dipped in the US. The FOMC’s (Federal Open Market Committee) statement is an important market-moving indicator. It’s capable of reversing market trends. The strengthening US dollar lost heat and oil prices bounced back on March 18.

The SPDR S&P 500 ETF (SPY) gained 1.20%. It was led by Transocean Ltd. (RIG), Ensco Plc (ESV), and Nabors Industries Ltd. (NBR). They gained 8.77%, 6.48%, and 6.33%, respectively, on March 18.

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The yield on the US ten-year Treasury dipped below 2%. The US dollar, as gauged by the PowerShares DB US Dollar Bullish ETF (UUP), fell 1.98%. This boosted oil. Brent was up about 4.5%. Crude settled at $44.66 per barrel to record a 2.76% gain. This benefited the United States Oil ETF (USO). It gained about 5.01%.

FOMC downgrades its short to medium-term economic projections

The Federal Reserve’s economic forecasts are compiled in the SEP (Statement of Economic Projections) report. The forecasts reflect the estimates’ central tendency by excluding the three highest and three lowest projections.

The median estimate for the federal funds rate for the end of 2015 was lowered to 0.625% from 1.125%. For the end of 2016, it was lowered to 1.875% from 2.5%. The projections for the unemployment rate are 5%–5.2% at the end of 2015. The projections are 4.9%–5.1% at the end of 2016.

The inflation estimates for the end of the year were lowered to 1.3%–1.4%. In the US, inflation is measured as the change in the personal consumption expenditures price index. The long-term inflation target for the Fed remains at 2%.

In the US, unemployment has been declining due to an improving economy. The unemployment rate also improved since the 2009 crisis in the United Kingdom. It released its latest estimates on March 18. In the next part of this series, we’ll analyze the trend in inflation and unemployment for these economies.


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