It's highly likely the Fed will remove the "patience" language from the FOMC statement at the end of its two-day policy meeting on Wednesday. What happens after that is far-less certain.
Fed watchers agree that removing the "patience" language from the statement opens the door for a rate hike in June; in 2014, Fed Chair Janet Yellen indicated the verbiage meant no rate hikes for at least two meetings so removing it clears that self-imposed hurdle. But Yellen has more recently clarified that removing "patience" does not guarantee anything. The Fed will be data-dependent and assess the situation on a “meeting by meeting” basis, Yellen said during Q&A after her Congressional testimony.
Removing the 'patience' language is "a concession Yellen can make to hawkish members of the Fed even [if] she has no intention of raising rates in June and then can wait for another three months of data," says Pedro da Costa, economics reporter for The Wall Street Journal. But "if the economy remains on solid-enough footing, if growth comes in at or around 2.5% to 3%, and if the unemployment rate continues to fall and the payroll growth continues around 300,000 [per month] I do think they'll get ready to raise rates by summer or perhaps later. Depends on whether that does continue."
Related: 5 reasons the Fed WON'T hike rates in 2015
Last week's dim retail sales data and this morning's disappointing industrial production buttress da Costa's caveats on the timing of any rate hike, especially if the FOMC really is going to be 'data-dependent'. Recalling the old saying 'if ifs and butts were candy and nuts, everyday would be Christmas,' here are three reasons why the Fed won't raise rates in June -- or at least think twice about it:
Job quality, not quantity: The U.S. job market has clearly improved, with 12 straight months of payroll gains above 200,000 sending the unemployment rate down to 5.5%. But wage growth remains elusive -- average hourly earnings are up just 2% in the past year -- and, at 62.8%, the participation rate remains mired at levels not seen previously since the 1970s. "We don't, at this point...feel that have achieved so-called maximum employment in part for these very reasons," Yellen said last month before Congress.
[Get the Latest Market Data and News with the Yahoo Finance App]
But, yes, we have no inflation: Janet Yellen & Co. are understandably worried about de- and disinflationary forces dragging the global economy into a Japan-like stupor. Official inflation rates remain below central bankers' respective targets in Europe, Japan and the U.S. The annual rate of inflation fell to 0.5% in January for the 34 members of the Organization for Economic Cooperation and Development (OECD), the lowest level since October 2009. Last week, U.S. Producer Price inflation came in negative on a year-over-year basis for the first time since the financial crisis.
The Almighty Dollar: The dollar hit a 12-year high vs. the euro Monday and has been on a rampage vs. most other major currencies in recent months. A strong dollar poses a threat to U.S. exports and earnings for S&P 500 companies, a major reason the stock market has fallen for the past three weeks. "The same way they see the oil price plunge as a transitory factor [the FOMC] seems to be trying to look through the dollar's strength as a temporary factor," da Costa says. But "they don't want the dollar to get too strong because it hurts our exports and means we import disinflation from the rest of the world."
Related: 3 things you need to know about the tumbling euro
A key reason the dollar has been so strong is the divergent path the Fed is taking vs. other major central bankers, notably in Europe, China and Japan. As of last week, 23 global banks have loosened policy this year, which "puts [the Fed] in a more difficult position and exacerbates the kind of financial instability that comes with interest rates increases," da Costa says.
Related: Central banks still in "emergency mode": WSJ's da Costa
Still, he believes "consensus is building" within the FOMC to raise rates, citing "fatigue about keeping rates at zero" for more-than six years. Clearly it's hard to justify such extraordinary, emergency measures at this point but if the Fed really is going to be 'data-dependent' there's plenty of reasons for them to stay 'patient' even if after it's no longer official policy.
Aaron Task is Editor-at-Large of Yahoo Finance. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com.
