Wednesday, September 17, 2014

"Economists React to the Fed: Dovish Statement, Hawkish Projections"

From Real Time Economics:
The Federal Reserve on Wednesday said it would continue to keep interest rates near zero for a “considerable time” after it wraps up its bond-buying program, which the central bank said it expects to do next month. Two officials – Philadelphia Fed President Charles Plosser and Dallas Fed President Richard Fisher — dissented on the policy statement. And, in the central bank’s economic projections, most Fed officials said they continue to expect the central bank to start raising interest rates sometime this year.
Here are some quotes from economists following the Fed’s statement, projections and Chairwoman Janet Yellen’s press conference.
  • Statement was more dovish than expected — as very little in the text was changed. Both “significant” underutilization of labor resources and “consider time” remained, with no qualifiers added. … No meaningful upgrade was made in describing the economy.  With respect to inflation, there was a downgrade from inflation has “moved somewhat closer” to inflation has “been running below” the Fed’s longer-term objective.  While the text was more dovish than feared, the “dots” were more hawkish. Looking through the shift in how forecasts are reported (from target rate to target range), the median estimate for 2015 was raised from 1.125% to 1.50% — in other words, an additional fed tightening was priced into 2015. –Michelle Girard, RBS Securities
  • The only thing in this report that I see as a problem is that the hawks seem to be holding to their view even as the economy underperforms and their forecasts are being revised lower. This means that the hawks are not getting tired but that some of the doves may be tiring of fighting the fight even though they know they should. This is a dynamic we will have to watch carefully to see if the Fed is likely to make a policy mistake. At this point, I believe this is just a side effect of the recent back up in inflation and as these price pressures subside the doves will come out of hiding. –Steven Ricchiuto, Mizuho Securities