FOMC removes “patient” line, lowers Fed funds estimate

•     FOMC removes “patient” line, lowers Fed funds estimate

–    Replaces date-dependent guidance with data-dependent guidance

–    Lowers estimates of inflation & NAIRU, allowing slower pace of tightening

–    Lowers Fed funds estimates for 2015-2017 by 50 bps or so = 2 fewer rate hikes

•     USD reaction is incredible!

–    Range in EUR/USD 4.38%, biggest since 2000

–    Move lasted a considerable time, not the usual 5-minute short-covering

•     I still believe USD to strengthen, just maybe not as quickly

–    Market was heavily long USD – not surprising that people cover some risk

–    While pace of tightening is slowed, end-point remains unchanged

–    Rest of world still loosening (e.g., Sweden) = monetary policy divergence lives!

–    Outflow of funds from Europe into US fixed income likely to continue

•     Today:

–    Eurozone: ECB allots its third Targeted Longer-Term Refinancing Operation (TLTRO)

–    Switzerland:  SNB meeting:  SNB likely to remain on hold, CHF may strengthen a bit

–    Norway:  Norges Bank expected to cut 25 bps, could do even more after Sweden cut yesterday. NOK may weaken if Norges Bank reinforces its dovish view

–    US:  Initial jobless claims, Philadelphia Fed index, Conference Board leading index