Feel Free To Move About The Cabin

The Fed has (partially) spoken. The markets are reacting, and they like what they hear. In fact, the markets seem to have adjusted very quickly to the dropping of the word “patient” from FOMC language, an alteration to the text we predicted, as we did its replacement with similar verbiage.

Here is the heart of the matter in the statement:

“The 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.”

In the midst of that sentence we should note the word “further” and the expression “reasonably confident.” Without resorting to a dictionary, we can assume that “further” means “at some more desirable stage,” or some such. “Reasonably confident” speaks for itself and stands as an-ever-so-slightly weakened replacement of “patient.”

Federal Reserve Chairwoman Yellen, it should be noted, also said in her after-meeting press conference, “Just because we removed the word patient from the statement doesn’t mean we’ll become impatient.”

While this semantic twist is similar to early Church fathers’ discussion of the meaning of the Holy Trinity and the relationship among the Father, Son and Holy Spirit, the distinction is a slight difference, as any of us know who have waited a few minutes too long in the morning for a barista to make our latte. But, by and large, the Fed is staying the course.

Further (oops), our interpretation of the actual citing of June as a first possible rate-increase date smells as if it will not be the date, unless employment surges and inflation somehow gets as out-of-control as a wild mustang.

We still believe in September as the date of a rate increase, although we expect more wailing and gnashing of teeth by investors and traders in the run-up to June.

Gold is surging by $25 as of 4 PM in New York.

Equities in New York, after having been down most of the day are now up: the Dow by 0.82%, the S&P 500 by 1.20% and the NASDAQ by almost 1%. Crude and natural gas are also up significantly, especially Brent North Sea.

But, caveat emptor. Initial analyses of these kinds of statements are often off base and often force a “correction” of interpretation.

"I truly believe the message is going to be that 'patient' isn't in the statement so that gives us some optionality over the net few months," said Art Hogan, chief market strategist at Wunderlich Securities. "We typically get a knee-jerk reaction. More times than not the first reaction is wrong."

Until then, feel free to walk around the cabin. But remember, those seatbelts are there for a reason.

Wishing you as always, good trading,