U.S. Federal Reserve Drops Calendar-Based Guidance: Rate Hikes Will Depend On Growth

PASADENA, Calif., May 1, 2015 /PRNewswire/ -- Appearing on CNBC, Western Asset Portfolio Manager/ Research Analyst John L. Bellows said Western Asset expected the inaction taken by the U.S. Federal Reserve, which announced it would leave interest rates at zero on Wednesday.

As Mr. Bellows said on CNBC, the most important part of this week's Fed statement was that it "described the weakness in the first quarter as 'transitory,' Fed members are willing to look through that weakness. They think it's oil, they think it's the dollar and they think the economy is going to be stronger in the second and third quarter. And whether or not they hike in September or later really depends on whether they are right on that call."

In the statement from the Fed, calendar-based forward guidance was completely removed.

"This is an important step for the Fed, and removing forward guidance opens up the possibility of rate hikes at future meetings," Mr. Bellows commented. "In fact, the June FOMC meeting will be the first meeting since March 2009 where Committee members will have real discussions about raising rates. While we don't think they will raise rates in June, the fact that they are discussing it will be somewhat of a milestone."

Although the Fed is unlikely to hike in June, it appears to be on track to raise rates later this year.

As noted in a recent whitepaper authored by Mr. Bellows, "While there is certainly continued scope for low inflation to concern the dovish Fed, we think it's premature to write off 2015 completely. Our view has been that the Fed has a strong desire to continue its process of normalizing monetary policy, and it seems likely that the conditions will be met for the Fed to do so later this year."

The full Western Asset Policy Matters whitepaper, "Fed Update: Don't Write Off 2015 Just Yet," can be accessed via the Western Asset website. 

About John L. Bellows Ph.D.

John Bellows joined Western Asset Management in 2012 as a portfolio manager/research analyst. From 2009 to 2011 he served in the U.S. Department of the Treasury in three capacities: Acting Assistant Secretary for Economic Policy; Deputy Assistant Secretary for Microeconomic Analysis; and Senior Advisor in the Office of Economic Policy. Mr. Bellows earned a Ph.D. in economics from the University of California, Berkeley, and a B.A. in economics, magna cum laude, from Dartmouth College.

About Western Asset

Western Asset Management is one of the world's leading fixed-income managers with $455 billion in assets under management as of March 31, 2015. The firm is a wholly owned, independently operated subsidiary of Legg Mason, Inc. (NYSE: LM)  From offices in Pasadena, Hong Kong, London, Melbourne, New York, Sao Paulo, Singapore, Tokyo and Dubai, the company provides investment services for a wide variety of global clients, across an equally wide variety of mandates. To learn more about Western Asset Management, please visit www.westernasset.com.

About Legg Mason

Legg Mason is a global asset management firm with $703 billion in assets under management as of March 31, 2015. The Company provides active asset management in many major investment centers throughout the world. Legg Mason is headquartered in Baltimore, Maryland, and its common stock is listed on the New York Stock Exchange (symbol: LM).

These opinions are not intended to be a forecast of future events, a guarantee of future results, or investment advice. All data referenced are from sources deemed to be reliable but cannot be guaranteed. Securities and sectors referenced should not be construed as a solicitation or recommendation or be used as the sole basis for any investment decision.

Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed-income securities falls.

©2015 Legg Mason Investor Services, LLC, member FINRA, SIPC. Legg Mason Investor Services, LLC and Western Asset Management Co. are subsidiaries of Legg Mason, Inc.

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