Fed-Watchers Are Obsessing Over The Phrase 'Considerable Time'

On Wednesday, Fed Chair Janet Yellen will also hold a press conference discussing the Fed's latest monetary policy decision, and a huge change in the Fed's forward guidance - or how the Fed describes the future path of monetary policy - could be coming.

Back in late August, we noted that Lew Alexander at Nomura wrote that the Fed is likely to drop the phrase "considerable time" when discussing how long after the conclusion of asset purchases the Fed will look to raise interest rates.

The Fed has signaled that it is on pace to end QE in October, thus starting the countdown to the Fed's first interest rate increase. In recent monetary policy statements, the Fed has said that, "it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends."

"At a minimum, we expect the FOMC to add language that stresses the 'data dependence' of future interest rate decisions," Alexander wrote. "We expect the FOMC to continue to state that the adjustment of interest rates, when it comes, will be 'balanced' and that it expects interest rates to converge to normal levels more slowly than employment and inflation. But in light of sustained improvement in labor market performance, and the inherent complexities in assessing their state, we expect the FOMC to drop its assessment that 'lift-off' is still a 'considerable time' away."

And in the weeks since Alexander first floated this idea, analysts comments and media reports have also focused on the likelihood of the Fed dropping this phrase.

On September 5, The Wall Street Journal's Jon Hilsenrath reported that many inside the Fed were, "uncomfortable with the vague commitment implied in the guidance" for keeping interest rates low.

In a note to clients last week, Dana Saporta at Credit Suisse said the Fed dropping its use of "considerable time" seems "ripe for change," either at Wednesday's meeting or soon thereafter. Saporta also said the Fed could drop the labor market characterization that says there remains "significant" underutilization of labor resources.

And as those around Wall Street look for the Fed to change its language, others have taken stock of recent commentary from FOMC members, and specifically when they expect the Fed to begin raising rates.

David Mericle and Michael Cahill at Goldman Sachs wrote in a note to clients this week that, "Overall, we have seen a greater clustering of FOMC participants' views around mid-2015 in recent months, with a couple of more dovish members indicating a possible shift forward. Similarly, private sector forecasts for the first hike became more centered on mid-2015 from August to September."

Between Yellen's press conference, the latest dot plot, and of course the Fed's monetary policy announcement, there will be a lot to digest on Wednesday, but certainly don't forget to bring your close-reading hat.