The Fed is in no rush to raise interest rates sooner than Fed watchers expect. Most of them expect the Fed to start doing so next year either in the spring or early summer. So yesterday’s statement retained the “considerable time” language that has been in the FOMC statements since the September 12-13, 2012 meeting of the committee. Back then, the specific sentence stated:
To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens.
This sentence was tweaked in the December 12, 2012 statement as follows:
To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends.
That program will end at the next meeting on October 28-29. Most Fed watchers seem to believe that six to nine months is a considerable time, which would mean that the first rate hike should be during either April, May, June, or July of next year.
As widely expected, during her press conference, Fed Chair Janet Yellen reiterated that there is room for improvement in the labor market. She noted that while inflation has risen in recent months, it remains below the Fed’s target. Fed policy remains data dependent, which means that the normalization of monetary policy will depend on the performance of the economy. So once the Fed starts raising interest rates, it could happen at a slow pace or at a fast pace.
On balance, there were no surprises yesterday other than for those of us who thought there was a chance that “considerable time” would be dropped. Clearly, Yellen is solidly in charge of FOMC policymaking, and she is among the most dovish members of the committee. In any event, during the Q&A session of the press conference, Yellen said that “considerable time” has nothing to do with time. She stressed that Fed policy is data dependent. So the Fed will hike rates when the data say it’s time to do so, not when the clock says so. In other words, “considerable time” is basically meaningless. Got that?
The Fed will maintain ultra-easy monetary policy as long as the economy needs it, which will depend on the FOMC’s assessment of the incoming data.
As widely expected, during her press conference, Fed Chair Janet Yellen reiterated that there is room for improvement in the labor market. She noted that while inflation has risen in recent months, it remains below the Fed’s target. Fed policy remains data dependent, which means that the normalization of monetary policy will depend on the performance of the economy. So once the Fed starts raising interest rates, it could happen at a slow pace or at a fast pace.
On balance, there were no surprises yesterday other than for those of us who thought there was a chance that “considerable time” would be dropped. Clearly, Yellen is solidly in charge of FOMC policymaking, and she is among the most dovish members of the committee. In any event, during the Q&A session of the press conference, Yellen said that “considerable time” has nothing to do with time. She stressed that Fed policy is data dependent. So the Fed will hike rates when the data say it’s time to do so, not when the clock says so. In other words, “considerable time” is basically meaningless. Got that?
The Fed will maintain ultra-easy monetary policy as long as the economy needs it, which will depend on the FOMC’s assessment of the incoming data.
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