Fed no longer patient but still dovish

Federal Reserve chair Janet Yellen dropped the word patient from her rhetoric at the March FOMC meeting as anticipated, but soothed markets with alternative language which was equally dovish.

Fed no longer patient but still dovish


The comments have reassured investors that the Fed will continue to tread very carefully and the first interest rate rise since the financial crisis may still be some way off.

The FTSE 100 started the day brightly rising 30 points as momentum from a well received Budget yesterday continued without being nixed by the Fed.      

“For me, two important messages stood out,” said Anna Stupnytska, global economist at Fidelity Worldwide Investment. “Firstly, the Fed explicitly acknowledged the effects of a stronger dollar on growth and inflation, implying that all the positive forces driving the economy, including a potential boost to consumption coming from lower energy prices, are perhaps not going to be sufficient to offset the negative dollar drag at this point and beyond, had the dollar rally continued.”

“The second interesting change was a downward revision to the long-term unemployment rate projection to 5.0-5.2%, implying labour market slack remains,” Stupnytska said. This in turn means that inflation and wage growth—and hence rates—can stay lower for longer.

“The Committee’s statement removed the word ‘patient’, but left intact the language on ‘data dependency’ as a determinant for future fed funds rates,” said Nick Gartside, fixed income CIO at, JP Morgan Asset Management. “The reference to “international developments” is a veiled reference to ECB activity and the strengthening dollar which has hurt exports.”

According to Tilney Bestinvest CIO Gareth Lewis while the dropping of ‘patient’ was expected, in many other respects the statement came as a surprise.

“Key among the surprises was the reduction in its own estimate of year end interest rates by a hearty 50bps, a further reduction in the estimate of non-accelerating inflation rate of unemployment and a modest reduction in expected growth for the economy,” he said.

“In essence they made the minimum change expected by the market, but have done so with little conviction,” Lewis added. “While the statement leaves the possibility of a June increase open, it lowers the expected path of rate tightening. All in all this will be enough to take some of the heat out of the Dollar rally – probably an intended consequence – and once again drive an increased appetite for US equities.”

Latest Stories