Last year, one of the top sound bytes out of the Fed was that it would remain "data dependent" in assessing how and when to raise rates. Indeed, various iterations of the same concept have pervaded almost any FOMC communication for quite some time. But in the earlier days of the Fed's use of that phrase, markets didn't take them at their word. I know I didn't--at least not to the extent they seemed to be advocating.
At issue was the fact that other parts of the overall monetary policy thesis seemed downright biased toward raising rates regardless of the incoming financial data. Fed speakers were saying things like 'zero rates are for a financial crisis and we're not in a crisis anymore.' Couple that with the fact that the economic data could slide quite a bit without bringing the economy anywhere near the crisis that prompted zero rates and it was a recipe for confusion.
Now we're getting more and more evidence that clears up the confusion. Here we are with some recent economic events and data that paint a slightly less rosy economic picture (but, by no means even come close to the data associated with the financial crisis) and the Fed is noticeably hesitant to continue talking tough about future rate hikes.
Today's speech from Fed Chair Janet Yellen served as a major opportunity to confirm the Fed's dovish stance at the last meeting or to begin prepping markets for the possibility of a rate hike at the April or June meeting. Yellen opted for the dovish path, to say the least, and even mentioned that the Fed had tools to provide accommodation even at zero rates. ("So the Fed is thinking about the imminent possibility of zero rates enough to mention it after just having begun to raise rates a few months ago?" every financial market participant said to him/herself).
The unabashedly dovish tone was all it took for stocks and bonds to go on relative rampages to their best recent levels. We'll have to wait and see "who wants it more" in the rest of the week.
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