Has the Fed's 'patience' been exhausted?

Sun Mar 15, 2015 12:58pm EDT
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By Mike Peacock

LONDON (Reuters) - For a world economy coming to terms with a soaring dollar and a plunge in oil prices, this week will be all about the U.S. Federal Reserve's policy meeting and its intentions on interest rates.

A combination of the European Central Bank printing lots of euros and expectations of a first U.S. rate rise has caused turmoil on the foreign exchanges and in emerging markets.

The euro, which peaked at nearly $1.40 in the middle of last year, is now languishing around $1.05 and apparently headed for parity.

After successive months of strong jobs data, expectations have been growing that the Fed will point towards a June rate rise by dropping a pledge to be "patient" in considering such a move.

But the dollar's surge, crimping U.S. exports and cutting imported inflation, could cause its policymakers to pause for thought.

St. Louis Fed President James Bullard, generally viewed as a hawk, said last week the central bank risked delaying too long given the fall in unemployment.

Others expect the absence of inflation to hold sway. A Reuters poll of around 70 economists found an almost even split between the first move coming in June or later in the year.

"Under our base case, continued inflation weakness will get the Fed to change its tune and refrain from hiking rates in June," said Michael Hanson, senior economist at Bank of America Merrill Lynch in New York.   Continued...

The United States Federal Reserve Board building is shown in Washington October 28, 2014. REUTERS/Gary Cameron