Slow Train to Lift-Off
An investor’s need to focus on every word from central bankers sometimes strikes us as the unfortunate folly that has driven the markets since the financial crisis. With the G-4 balance sheets exceeding $10 trillion and still growing, we suppose that this is a necessary evil given that their actions have been the biggest determinant of asset valuations over the past seven years. This was on full display yesterday, as we found ourselves dissecting whether adding the term “patient” with “considerable time” was particularly revelatory. To break the silent suspense, our take is that the statement was generally more dovish, but still moving toward a June-September liftoff. The odds of an earlier hike diminished further as we also tried to figure out if a “couple of meetings” completely remove the potential of a 1Q:15 hike. The dots and economic projections also support this view, as they were tweaked to lower inflation expectations and signal a slightly more benign ramp in the fed funds rate (we will elaborate on these thoughts in tomorrow’s report). We suppose these changes are part of the normalization process. However, if the steps are going to progress in such minute stages as indicated by yesterday’s changes, normalization is going to take a long time. That view was widely cheered by the market as a strong risk rally has ensued since yesterday’s announcement. This, at least temporarily, stopped the negative feedback loop for risk assets created by the increasingly disorderly decline in oil prices.