The measure of a press release

At the end of tomorrow's FOMC meeting, we will receive the usual press release telling us whether the fed funds target will change and by how much. But for the last few meetings, there has also been a specific word in that press release that seems to have taken on a life of its own. That word is "measured," as in "the Committee believes that policy accommodation can be removed at a pace that is likely to be measured."

If that word is missing from tomorrow's press release, perhaps simply by omitting that key sentence, it will spur a flurry of conversation in the MSM as well as on the economically oriented blogs (like this one). Reuters has this to say going into the meeting.

NEW YORK (Reuters) - The dollar rose to two-week highs against the euro and the Swiss franc on Monday on speculation the U.S. Federal Reserve may signal a more aggressive pace of interest rate rises at its meeting Tuesday.

The Federal Open Market Committee is widely expected to raise official U.S. interest rates on Tuesday for the seventh consecutive time by a quarter-percentage point to 2.75 percent, further widening the interest rate differential over the euro zone where the ECB's minimum bid rate is 2 percent.

Some expect the Fed could signal a more aggressive stance by removing from the statement accompanying its decision on monetary policy its oft-repeated pledge to raise rates at a "measured" pace.

"The removal of the word 'measured' ... would be positive for the dollar as it suggests the Fed is giving itself room to raise rates at a faster pace later this year," Bank of New York currency strategist Michael Woolfolk told clients in a note.

Late afternoon in New York, the euro had its sharpest one-day fall since the first week of the year, down 1.1 percent from late Friday to $1.3165.

It's a situation that I would not have forseen nine months ago. I wouldn't have expected a single word to linger in the press releases for this long and have such significance attached to it. It's almost as if the removal of the word will, in the minds of some, signal that a 50 basis point increase at the next meeting is a foregone conclusion. I certainly wouldn't go that far, but you and I both know that some people will.

Is the removal of "measured" a prerequisite for more agressive moves going forward? Probably. But that's a situation that the FOMC seems to have backed into by virtue of leaving the word in there for so long. When asked about this last summer (pre-blogging days, so I don't have a link), my response was that "measured" probably meant that rates would be raised 25 b.p. at a time with an occasional break where there is no change. Ah, but that is ancient history, before the term "measured" acquired a policy definition--or so it would seem.

For review: check out these fed funds futures charts from a couple weeks ago at macroblog.

All in all, I think the FOMC is probably going to opt for the 25 b.p. increase tomorrow and remove "measured" from the press release. The wording change will be mostly to give them a degree of freedom over whether and when the policy stance can shift into a more aggressive posture. We can then take a couple weeks to contemplate it before getting the minutes to tomorrow's meeting. If the word "measured" is removed tomorrow, then the date of the release of the minutes will be eagerly anticipated by us spectators out in the markets, academia, and the blogosphere.

And what news article on the dollar would be complete without this?

Under pressure from Asian currencies too, the euro slipped to a two-week low against the yen, at 138.31 yen , because of a news report purporting China may be getting closer to increasing the flexibility of its pegged currency regime.

The yen was helped by a report in the Beijing Daily saying China may expand its yuan currency trading band.

The yuan has been pegged since the mid-1990s at a rate of about 8.28 per dollar. If it is allowed to move more freely, it is widely expected to appreciate against the dollar.

"The People's Bank of China will gradually exit from daily forex transactions. The band within which the renminbi exchange rate floats may be expanded to 0.6 percent or 1 percent from the current 0.3 percent," the newspaper said. It did not mention a timeframe for any changes to the currency regime.

"Is it jawboning on the part of Chinese officials? We're not 100 percent sure," said a trader with GAIN Capital in Warren, New Jersey. "If it is true, then that should lead to dollar weakness."

And so it goes.