Recap : Too Much Transparency


The statement and SEP were pretty hawkish, but Yellen sounded dovish, with this huge exception:

Q. Once you do wind downs bond buying program, could you tell us how long of a gap we might expect before the rate hikes do begin?

CHAIR JANET YELLEN: So the language that we used in the statement is considerable period. So I, you know, this is the kind of term it’s hard to define. But, you know, probably means something on the order of around six months, that type of thing.

With the expectations of an end to QE in Fall of 2014, that implies a possible hike in the early Spring of 2015, vs FOMC forecast of a first hike in late Summer 2015.

The rest of her message was generally dovish… she actually tried to talk down the importance of the dots (quite strangely) by asking people not to focus too much on them, and she also noted that the Fed’s assessment of the economy was broadly unchanged vs Dec. But when combined with dovish expectations, a hawkish statement, and a SEP that has median Fed Funds expectations 25bps and 50bps higher in 2015 and 2016, respectively, the takeaway is that the Fed is now actively looking at when to hike. I’ve noted for some time that the risk premium in the US front end was minimal, but after today, prices look much more reasonable. However, arguably there is now a fair bit more uncertainty regarding the Fed’s reaction function now, so the band around ‘fair value’ so to speak is now wider.

Separately, interesting chart from the Economist:


  • FOMC:
  1. The Committee sees the risks to the outlook for the economy and the labor market as nearly balanced.
  2. The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions.
  3. With the unemployment rate nearing 6-1/2 percent, the Committee has updated its forward guidance. The change in the Committee’s guidance does not indicate any change in the Committee’s policy intentions as set forth in its recent statements.


  1. Median Fed Funds forecast ticked up 25bps for 2015 and 50bps for 2016:

  2. 2014 Unemployment: 6.2 vs 6.45 prev
  3. 2015 Unemployment: 5.75 vs 5.95 prev
  4. Core PCE forecasts were unchanged at 1.5 for 2014 and 1.8 for 2015

UK Jobless Claims declined -34.6k vs -25k exp and -27.6k prev. The ILO Unemployment rate was stable at 7.2% as exp

Upcoming Data:

  • Thu: US Jobless Claims, Philly Fed, Existing Home Sales
  • Fri: Canada Retail Sales, CPI, EU Consumer Confidence
  • Weekend: Kuroda Speaks, China Markit Flash PMI
  • Mon: EU PMI, US Markit Prelim PMI