The first scheduled FOMC meeting of 2015 ended today, and the Fed sounded a little more optimistic about the strengthening economy. That should increase the chance of a Fed rate hike in 2015. The primary indication that the Fed is seeing significant economic improvements is the change in the first sentence of the policy statement. The first sentence changed from the following in the December statement:
Information received since the Federal Open Market Committee met in October suggests that economic activity is expanding at a moderate pace.
To the following in today’s policy statement:
Information received since the Federal Open Market Committee met in December suggests that economic activity has been expanding at a solid pace.
The phrase "moderate pace" has been changed to "solid pace", and that’s a clear indication of that the Fed is acknowledging the strengthening economy.
The Fed also removed the words "for a considerable time" in describing a pledge to keep rates near zero. That suggests the Fed will be moving forward this year to start increasing rates. However, it’s in no way a sure thing. The Fed still says that it’ll be "patient", and it continues to stress that a rate hike will depend on economic data:
Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. However, if incoming information indicates faster progress toward the Committee’s employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated.
The Fed suggested that low inflation and a weak global economy could cause it to delay rate hikes. However, it’s still quite possible that the first Fed rate hike will be announced at the June meeting. If the economy cooperates and the Fed moves in that direction, we should see signs in the Fed’s March and April meetings. If we see the removal of words like "patient", the Fed is definitely moving toward a rate hike.
One thing that may increase the chance of a rate hike delay is this year’s composition of the FOMC. Two outspoken inflation hawks, Philadelphia Fed President Charles Plosser and Dallas Fed President Richard Fisher, are not voting members this year. This is due to the yearly rotation of the regional Fed presidents who make up voting members on the committee. Out of the four new voting members, only one is considered an inflation hawk. That’s Richmond Fed President Jeffrey Lacker. He might not be as much of an inflation hawk as Plosser and Fisher. Both Plosser and Fisher voted against the Fed’s policy statement. This time neither Lacker nor anyone else on the FOMC voted against the policy statement.
Future FOMC Meetings
The next two FOMC meetings are scheduled for March 17-18 and April 28-29. The March meeting will include the summary of economic projections and a press conference by Chairwoman Yellen.