Tags: Timetable | Rate | Rise | Fed

Timetable for Rate Rise? Don't Bother Asking a Fed Official

Thursday, 09 Oct 2014 06:20 PM

There they go again.

Federal Reserve officials insist that the outlook for interest rates depends on how economic data evolves and isn’t driven by the calendar. They are nevertheless offering various views on the probable timing of the first increase since 2006.

The Fed’s pledge that interest rates will stay low for a “considerable time” could mean anything from two months to one year, Vice Chairman Stanley Fischer said Thursday.

New York Fed President William C. Dudley said this week that forecasts for an increase in mid-2015 are “reasonable.” Thursday, San Francisco Fed President John Williams said that timeframe is a “reasonable guess to my mind.”

Even so, he offered this caveat: “I’ve said it often enough that I should probably have a T-shirt, but let me reiterate: The decision to raise rates will be data-driven, not date-driven,” Williams said in a speech in Las Vegas.

Most Fed officials expect the rate to rise some time next year, according to projections released on Sept. 17 following their last meeting. Traders see a 56 percent chance the Fed will raise the rate by September 2015, fed funds futures data compiled by Bloomberg show.

“It looks like the markets have it right, somewhere in the middle of the year,” Fischer said Thursday at an event in Washington. Still, like his colleagues, he stressed the Fed’s message that the outlook for policy is data-dependent.

James Bullard of the St. Louis Fed, who sees the rate going up at the end of the first quarter of next year, said investors have it wrong. “In my mind the markets are making a mistake,” he told reporters Thursday.

Sowing Confusion

Joseph LaVorgna, chief U.S. economist at Deutsche Bank AG in New York, said officials risk sowing confusion.

“It’s hard to have a unifying message when you have this many people who feel it’s incumbent on them to tell you what the Fed is thinking,” he said.

“I wish the Fed would answer generalities with generalities,” he said. “When they try to quantify, that’s when the problems come up.”

The Federal Open Market Committee has said since March that its benchmark rate would stay low for a “considerable time” after it completes monthly bond buying intended to boost growth. It reaffirmed that commitment after its Sept. 16-17 meeting, even though asset purchases are likely to end after this month’s gathering.

Since cutting the federal funds rate almost to zero in December 2008, the Fed has sought various ways to assure markets borrowing costs would stay low to help the economy recover from the worst recession since the Great Depression.

They did that initially by saying that the funds rate, the interest banks charge each other for overnight loans, would stay “exceptionally low” for “some time,” or for “an extended period.” That was later changed to guidance based on a specific date, which was dropped in favor of economic thresholds. Now the Fed sees rates staying low for a “considerable time.”

Fed Chair Janet Yellen in recent months has avoided giving a timeframe. She was burned in March, when she suggested that a “considerable time” might mean six months. Treasury yields jumped on her comments.

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Federal Reserve officials insist that the outlook for interest rates depends on how economic data evolves and isn't driven by the calendar. They are nevertheless offering various views on the probable timing of the first increase since 2006.
Timetable, Rate, Rise, Fed
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2014-20-09
Thursday, 09 Oct 2014 06:20 PM
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