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The Federal Reserve could lose patience on Wednesday



Will the Federal Reserve announce at the close of its meeting of the Federal Open Market Committee on Wednesday that it is no longer "patient"?

The semantics behind the word "patient" has been dissected since Fed President Jerome Powell first deployed the word at the Fed's meeting on January 31, when policymakers fell behind and their stance on interest rates dropped "Neutral" level of the economy to raise, weakened.

Powell's "pause" indicated that the Fed was still raising interest rates

But the build-up of trading tensions and weak economic data has led some Fed officials to publicly acknowledge the fall in interest rates. And the expectation that the Fed will drop its "patient" language, in addition to one or two opposing votes, could turn the June meeting into a turning point for the "break".

Wall Street expects the FOMC to keep interest rates stable at 2.25% to 2.5% in the current target range, but Powell's commentary is increasingly being considered in addition to the dot plots planned for release Markets are trying to decipher the degree of restraint if the Fed continues to fluctuate neutral.

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Goldman Sachs wrote on 14 June that the Fed is likely to drop the word "patient" and Barclays predicted that the Fed would replace the word "patient" in the FOMC statement with "flexible".

"[W] I think the word" patient "in the FOMC statement has had its day," Barclays wrote on June 13. "In our view, the retention of 'patients' for markets that sound Signed a price cut in July and a loosening of 100 [basis points] over the next four quarters, probably too ugly. "

FILE PHOTO – Federal Reserve Governor Lael Brainard Addresses "Coming of Age in the Great Recession" at the Federal On April 2, 2015, Washington, DC, USA hosted the ninth biennial community Development Research Confe rence of the reserve on economic mobility. REUTERS / Yuri Gripas / File Photo

Important Fed officials have already pointed to the possibility of easing policy. On June 4, Powell raised markets after making prepared statements promising to "act appropriately to sustain expansion," referring to the downside risks to trade between the US and China. In May, trade talks collapsed and the US raised tariffs on Chinese imports worth about $ 200 billion from 10% to 25%. The government has threatened another round of customs clearance for additional $ 300 billion worth of goods.

Fed governor Lael Brainard repeated Powell's comments in an interview with Yahoo Finance the day after.

"Trade policy is definitely a downside risk to the economy and our job is to sustain expansion," Brainard said June 5. "And we need to see what that means for politics. "

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Although neither Powell nor Brainard have committed to explicitly lowering interest rates, their declared commitment to expand US expansion reflects their recognition from downside risks to the economy.

The softer tone of the Fed is also reflected in weaker economic data since the last Fed meeting on May 1. The employment report for May missed estimates on salary growth, and lukewarm wage growth pointed to a labor market that may be under full employment. Inflation, which is consistently below the Fed's 2% target, remains a mystery to politicians worried about a slowdown in economic activity.

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Abort The" patient "language may open the door to future interest rate hikes, but the June meeting may also include explicit calls by some voting members for interest rate cuts.

St. James Bullard, President of the Louis Federal Reserve Bank, speaking at a public lecture in Singapore on October 8, 2018. REUTERS / Edgar Su

St. US Federal Reserve Chairman James Bullard and Fed Chairman Charles Evans, both voting members of this year's FOMC, may disagree if the majority of the committee decides to keep interest rates constant. In this case, these would be the first disagreements since Jerome Powell took over the presidency in February 2018.

Goldman Sachs and UBS wrote that they would expect Bullard to contradict if the Fed chooses to keep interest rates stable rather than prefer the central bank to shift banks to lower interest rates.

Earlier this month, Bullard announced that a rate cut would be "soon" justified by low inflation expectations. Bullard drew attention to the key rate cuts of 1995 and 1996 to illustrate the ability of the Fed to complete some "insurance" ahead of a possible slowdown.

"The Fed did this right once," Bullard said on June 3.

Chicago Fed President Charles Evans, also a voting member, is also a potential dissident. On June 5, Evans Bloomberg said low inflation could be a "reason for a little more housing."

Although not uncommon (Yellen had to fight with 15 dissidents in her four years as chairman), one or two dissidents would signal on Wednesday the beginning of an explicit policy easing trend.

Most on Wall Street expect the Fed to suggest a rate cut in July, but markets are pricing in a non-zero chance of interest rate hikes this Wednesday. On Monday afternoon, Fed Funds' futures contracts had a shot at a rate cut of 19.2% this week.

<p class = "canvas-atom canvas-text Mb (1,0em) Mb (0) –sm Mt (0.8em) – sm" type = "text" content = " Brian Cheung is a reporter on the banking industry and the finance and policy interface for Yahoo Finance, and you can follow him on Twitter [19659018] @bcheungz . "data- reactid = "83"> Brian Cheung is a reporter dealing with the banking industry and the interface of finance and economics directive for Yahoo Finance. You can follow him on Twitter @bcheungz .

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