Tags: federal reserve | bill gross | interest rate | economy

Bill Gross: Fed Switches to 'Prudence and Concern,' Won't Raise Rates Until September

By    |   Wednesday, 18 March 2015 06:10 PM

 
In dropping the word "patient" from its policy statement Wednesday, the Fed shifted from a patient stance to a "prudent" one on raising interest rates, according to star bond-fund manager Bill Gross of Janus Capital Group.
 
"The Fed expressed a lot of prudence and concerns going forward," he told CNBC.
 
"They expressed concern about the potential for inflation. They expressed concern about the potential for global weakness and international developments, which is code basically for a strong dollar. And they expressed concern in terms of the employment situation not threatening inflation going forward."
 
As a result, Gross shifted his prediction for the beginning of rate hikes to September from June.
 
In its statement Wednesday, the Fed said, "The [Fed's policymaking] Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term."
 
The Fed's favored inflation gauge, the personal consumption expenditures price index, climbed only 0.2 percent in the year through January.
 
Others agree with Gross' timeline.

"There’s not enough time between now and June to say inflation expectations have bottomed out, which probably pushes you out to September," John Canally, chief economic strategist at LPL Financial, told Bloomberg.
 
"The statement about the economy softening a bit raises the market’s awareness that the economy is under-performing where the Fed wants it to be, which pushes them out."
 
Most Fed policymakers predicted GDP growth will range from 2.3 to 2.7 percent this year, down from their forecast of 2.6 to 3.0 percent in December. The inflation forecast slid to 0.6 to 0.8 percent from 1.0 to 1.6 percent.
 
"What was unexpected is that their expectations for growth in the economy came down, as did their expectation for inflation," Kevin Caron, a market strategist at Stifel Nicolaus, told Bloomberg.
 
"Consequently, even though they removed the patient language, they’re also telling the market through these reduced expectations that the path for interest rates increases is going to be relatively shallow."
 
Some experts had speculated the Fed already was satisfied with progress in the labor market, given that payrolls have increased by at least 200,000 for 12 straight months. But apparently not.
 
"They went a little further . . . than most of us thought, particularly on the labor point," said Bob Doll, chief equity strategist at Nuveen Asset Management, according to CNBC.

"This is a dovish set of comments relative to expectations."
 
Dan Greenhaus, chief strategist at BTIG, agrees. "We remain of the belief the Fed will first raise rates in September and view this statement, and the projection changes, and reducing the odds of a June hike," he wrote in a commentary obtained by CNBC.
 
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In dropping the word "patient" from its policy statement Wednesday, the Fed shifted from a patient stance to a "prudent" one on raising interest rates, according to star bond-fund manager Bill Gross of Janus Capital Group.
federal reserve, bill gross, interest rate, economy
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2015-10-18
Wednesday, 18 March 2015 06:10 PM
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