Figuring the Fed: How Long is a 'Considerable Time' Before Raising Rates

Fed Chair Janet Yellen
Fed Chair Janet Yellen

The Federal Reserve may have narrowed its timetable for the beginning of higher interest rates, a move not seen since before the financial crisis and one that could seriously affect the ability of consumers to borrow.
Fed policy makers closed out a two-day meeting Wednesday by holding to October’s pledge of keeping rates near zero for a “considerable time”, which is a bow to a relatively strong economic U.S. recovery. At least that’s what the Fed’s official statement said.
Fed Chair Janet Yellen, however, may have narrowed that time-frame during a news conference, stating that the Fed’s policy-setting Federal Open Market Committee was unlikely to hike rates for “at least a couple of meetings,” meaning April of next year at the earliest.
The Fed has held benchmark overnight rates near zero since December 2008.
The policy maker’s released statement was more specific, but unflinching, in its vague time table. Here it is:

“The Committee sees this guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program in October, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.”
Yellen told reporters that despite the sharp decline in gas prices, inflation would eventually turn higher and approach the central bank’s 2 percent target.
Fed officials would feel right about raising rates as long as expectations of future inflation held firm.
“By the time of liftoff, participants expect to see some further decline in the unemployment rate and additional improvement in labor market conditions,” Yellen said.
In a poll by Reuters, 13 of 19 big Wall Street firms said they expected a Fed rate increase by June, which is about the same sentiment found in a November survey.

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