Expert Views - U.S. Fed revamps rates guidance, trims bond buys further

NEW YORK (Reuters) - The Federal Reserve on Wednesday dropped the U.S. unemployment rate as its definitive yardstick for gauging the economy's strength, and made clear it would rely on a wide range of measures in deciding when to raise interest rates.

KEY POINTS:

* Fed dropping its promise to hold rates steady "well past the time" the U.S. unemployment rate falls below 6.5 percent doesn't indicate any change in the Fed's policy intentions.

* Fed cuts monthly purchases of U.S. Treasuries and mortgage-backed securities to $55 billion from $65 billion.

* Fed's assessment of the U.S. economy chalked up recent weakness to adverse weather.

COMMENTS:

SCOTT CLEMONS, CHIEF INVESTMENT STRATEGIST, BROWN BROTHERS

HARRIMAN PRIVATE BANKING, NEW YORK:

"It strikes me as a pretty dovish statement, but what surprised me is the word choice. Right now the unemployment rate remains elevated. I think that the Fed is far more focused on that than they are on their other mandate, inflation."

"The bigger picture here, to me this sends a very strong signal that the Yellen Fed is a continuation of the Bernanke Fed in one very important aspect. Whereas the Fed is often thought of as having two policy tools, balance sheet operations and interest rates, under Bernanke and Yellen they have made communication a very potent third tool as well. They're going to communicate, communicate, communicate so that when the fed funds rate begins to move higher, hopefully the collective economy shrugs its shoulders and says, 'Yeah, we knew that was coming.'"

JIM KOCHAN, CHIEF FIXED INCOME STRATEGIST, WELLS FARGO FUNDS

MANAGEMENT, MENOMONEE FALLS, WISCONSIN:

"The committee has updated its forward guidance, I wish they would tell us what that updated forward guidance is. We can assume their forward guidance is that they will be looking at broader measures of labor market activity to see when it's appropriate to raise interest rates, and 6.5 percent doesn't have much meaning anymore. If there are going to be any surprises it's going to be with the press conference. I think it was very much as expected."

DAVID MOLAR, PARTNER AND MANAGING DIRECTOR AT HIGHTOWER, SAN

DIEGO:

"The Fed moved the goal post again. It goes from a 6.5 percent unemployment threshold to a qualitative approach which is nebulous for the market. No one knows what will trigger further tapering, a pause in tapering or an increase in asset purchase. It's a major change in policy. This Fed seems to be making it up as it goes along. The markets are spiking on this even though analysts have been expecting this along. Gold has sold off and you are seeing pressure on bonds and rate-sensitive sectors."

MARK GRANT, MANAGING DIRECTOR, SOUTHWEST SECURITIES, FORT

LAUDERDALE, FLORIDA: "What seems to be troubling the market is that even though it reiterated that it wouldn't be raising rates this year, people were put on notice that a hike is coming. We'll likely see some rise in short rates as a result of this, if not out across the whole curve."

SHAUN OSBORNE, FOREIGN EXCHANGE STRATEGIST, TD SECURITIES,

TORONTO: "It's a little bit more hawkish than people expected. They seem to see interest rates rising sooner rather than later. People had been expecting something slightly more dovish given the effects on economic activity from the harsh winter. This is helping the dollar."

FRED DICKSON, CHIEF MARKET STRATEGIST, D.A. DAVIDSON & CO, LAKE

OSWEGO, OREGON: "I think everybody expected a $10 billion cut in the rate of QE3 purchases to $55 billion, so there's no surprise there. "There was a high degree of speculation in terms of changing the Fed language, so there was some clarity on that point. "Probably the biggest takeaway was the Fed saying they would possibly consider maintaining monetary policy or interest rates lower than what they would normally be even when the Fed guideline targets of unemployment and inflation were hit. So the question becomes whether that would in fact create some inflation pressure."

THOMAS DI GALOMA, CO-HEAD FIXED INCOME RATES, ED&F MAN CAPITAL,

NEW YORK "This statement from the Fed is as hawkish as it gets -- the only thing they did not do is (raise) rates today. The Fed is at neutral now and expect rate hikes to begin sometime in early 2015."

WAYNE KAUFMAN, CHIEF MARKET ANALYST, ROCKWELL SECURITIES, NEW

YORK "So far this is just what the market wanted-the Fed staying accommodative. It doesn't look like too much has changed, although dropping the 6.5 percent unemployment rate might be a key issue. Yields are jumping up right now, which might be a sign that people think Yellen will tighten sooner rather than later, or that inflation could come into the market if the Fed keeps rates low well past 6.5 percent."

BRUCE McCAIN, CHIEF INVESTMENT STRATEGIST, KEY PRIVATE BANK,

CLEVELAND, OHIO "At this point, there are relatively few surprises. I think in some sense, as the Fed tapers it becomes less important for the market. What becomes more important from here is whether the economy can recover its momentum once the weather issue thaws. One of the headlines I saw was that a majority of members do expect a rate hike. I think that's a little disappointing for investors. In addition, if we replace the 6.5 percent rate with a variety of indicators, that makes Fed actions less predictable, which adds to the market uncertainty."

PAUL MANGUS, HEAD OF EQUITY RESEARCH AND STRATEGY, WELLS FARGO

PRIVATE BANK, CHARLOTTE, NORTH CAROLINA "The one difference I could see early on was a little bit more information on when and by how much the Fed may increase rates in 2015, which is a long way off yet. Other than that, we expected to hear more about a wider range of economic indicators beyond the unemployment rate and that was in the release, so that was not a surprise. The economic information that was supplied was also pretty much as expected, mentions of weaker labor markets earlier in the year due to weather conditions but showing signs of improving. Other areas of the economy are continuing to show signs of gradual improvement, but the Fed was looking for a much stronger economic background before it would start any type of tightening efforts, so it would continue to support liquidity in the marketplace."

(Americas Economics and Markets Desk; +1-646 223-6300) nL2N0MG1DJ