For tomorrow’s much anticipated Fed announcement, please consider a talk with Peter Schiff, the CEO of Euro Pacific Capital, www.europac.com. In short, he believes that there is far too much being made about the inclusion or deletion of a single word. See his quick statement below. Please feel free to excerpt from the statement or contact Andrew Schiff, firstname.lastname@example.org to arrange a phone interview with Peter Schiff.
Despite the current fixation on word choice, it makes virtually no difference whether the Federal Reserve decides to remove “patient’ from its statement this week. In many of her recent discussions, Janet Yellen has taken great pains to communicate that the removal of the word commits the Fed to nothing. She has said that as long as “patient” remains in place, rate hikes are off the table. But she has not said, as some market watchers believe, that removal of the word means that hikes are coming. She has said that it would mean that hikes could occur if the data “supported it.” In other words, “patient” is just a straw man, the real controlling factor is the economic data. On that front the numbers could not be much softer.
Recent months have seen a series of surprise downside misses in economic data, with today’s miss in housing starts being one of the most dramatic. Taken together, these data points paint a picture of an economy that is decelerating rapidly. Given the bias the Fed has shown for “nurturing” the fragile economy with monetary accommodation, we should conclude that absent strong improvements in data, rate hikes are extremely unlikely, regardless of changes in diction.
But the removal of the word “patient” may cause investors to place bets for an imminent rate increase. This may be a very risky proposition. The Fed may simply be doing what the markets expect, thereby maintaining the pretense of a drift towards normalization. So instead of counting words, which have already been shorn of their significance, market watchers should take a hard look at the economy, and realize that the “tightening in 2015 narrative” doesn’t hold water.