‘Patient’ FOMC is upbeat but acknowledges sluggish inflation

Otmane El Rhazi from The Bullion Desk.

The Federal Reserve stayed the course on Wednesday, releasing a bland and mostly repetitive policy statement that failed to stir most commodities markets but did push equities and gold moderately lower.

The members of the Fed’s policy board are locked in what’s become an increasingly public debate on when will be the right time to raise interest rates, which have been near zero since December 2008. The current market consensus is that the first hike will happen sometime in the second half of this year.

The Federal Open Market Committee (FOMC) said on Wednesday that it can be “patient in beginning to normalize the stance of monetary policy”, which is the exact same language from its prior meeting. But the committee did make some small tweaks that indicate that the economy is healing.

Now only did the FOMC remove “considerable time” from its language on tightening, but it also noted that economic activity has expanded “at a solid pace”, which is upgrade from “moderate pace” in the last statement.

Inflation has declined further below the Fed’s longer-run objective of two percent, largely reflecting declines in energy prices; however, the FOMC added that survey-based measures of longer-term inflation expectations have remained stable.

“The market wasn’t expecting big changes and they didn’t get any. [The FOMC] did say that inflation has softened a little but they don’t seem think that [the US] will fall into deflation,” a US-based futures trader said.

“They can sit back for a couple more months to see what happens with the dollar, oil and inflation. And after what happened last week [at the European Central Bank and the Swiss National Bank], the Fed was smart not to make any waves today,” he added.

In commodities, gold for February delivery on the Comex division of the New York Mercantile Exchange was last at $1,284.00 per ounce, which is about $4 below the pre-FOMC level.

Comex copper futures were $2.47 per pound, up 0.7 cents, while light sweet crude (WTI) futures were still deep in the red at $44.70 per barrel, down 3.3 percent for the session.

In the wider-markets, the dollar was 0.36 percent stronger at 1.1340 against the euro, while the Dow Jones industrial average and S&P 500 were down 0.23 percent and 0.50 percent respectively.

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