Fed Likely to Remove ‘patient’ Guidance

Markets eagerly await Wednesday's FOMC decision (post-meeting statement and updated projections: 14:00 ET, Chair Yellen's press conference: 14:30 ET). Standard Chartered research notes: We think the Fed will remove the "patient" guidance from the statement as it seeks to move towards a more flexible, data-dependent framework. We do not think the softer recent data (e.g., housing, manufacturing production, Michigan consumer survey) changes this picture as the Fed is likely to blame recent weaker data on the harsh weather and emphasize strong payroll growth data. Payroll additions have averaged a solid 293,000/month in the past six months. We do not think the removal of 'patient' automatically means a June rate hike, which Chair Yellen is likely to underscore in her press conference. We think the Fed is likely to wait until September, after core PCE inflation troughs and with more signs that wage growth is on a sustainable uptrend. The Fed may also see more evidence of improving growth in Q2 to support its view that soft Q1 data was weather-related. The shape of the tightening cycle will be an important topic: we expect Yellen to say it is likely to be very gradual, and remain data-dependent. We do not think Yellen will 'talk down' the US dollar's recent strength as, although a headwind, she may emphasise it may be offset by the boost to consumption from lower oil prices and the ongoing underlying improvement in domestic demand.

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