“Patience” has been a constant buzzword in Federal Reserve lexicon as of late and on Wednesday, the central bank will release the minutes from the Jan. 29-30 meeting in which they elected to keep the federal funds rate unchanged.
Investors and traders alike will no doubt dissect the Fed minutes to extrapolate their own interpretations from it. Nonetheless, the word “patience” will once again come under the proverbial microscope.
“I really want them to define patience a little more systematically,” said Derek Tang, an analyst at Monetary Policy Analytics in Washington. “Some color there would be helpful.’’
Last month, the Fed voted unanimously to hold its policy rate in a range between 2.25 percent and 2.5 percent. The markets cheered the move as the Dow Jones Industrial gained as many as 400 points following the news to keep rates static.
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A More Flexible Fed?
A separate statement last month alluded to a more flexible Fed that would be more strategic with regard to its balance sheet policy. Furthermore, flexibility would also apply to its holdings of Treasuries and mortgage-backed securities, which signaled a diversion from statements that the central bank would resume its asset purchases if economic data warranted a rate cut.
“We are going to get a sense of the landing point” for the balance sheet, said Julia Coronado, president and founder of MacroPolicy Perspectives LLC in New York, referring to a stopping point in the rundown of bank reserves. “The minutes are likely to send a signal that the end of the reduction in the Fed’s Treasury portfolio could come as early as April.”
The decision to keep rates flat came last month as the Fed didn’t show much dynamism in 2018, obstinately sticking with a rate-hiking measure with four increases in the federal funds rate. That appears to have changed given the current economic landscape, and especially in the capital markets as Fed Chair Jerome Powell is now preaching patience and adaptability.
The shift from its more aggressive rate-hiking measures came as U.S. equities finished their worst year in over a decade. The Dow fell 5.6 percent, while the S&P 500 lost 6.2 percent and the Nasdaq Composite fell 4 percent.
Furthermore, December alone resulted in the Dow falling 8.7 percent and the S&P 500 losing 9 percent, making it the worst December since 1931. However, as evidenced by the latest mentions of patience, it appears the Fed is finally paying closer attention to the pulse of the markets.
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