Tags: Rivlin | Yellen | rate | guidance

Rivlin to Yellen: Dump Unemployment Level From Rate Guidance

By    |   Wednesday, 19 March 2014 11:24 AM

New Federal Reserve Chair Janet Yellen should guide the Fed to stop offering a specific unemployment rate as a threshold for considering an interest-rate increase, says former Fed vice chair Alice Rivlin.

The central bank is finishing its policy meeting Wednesday. In its January policy statement, the Fed said it likely wouldn't consider raising short-term interest rates until "well past the time" that the unemployment rate fall below 6.5 percent.

But with the unemployment rate already at 6.7 percent in February, some people inside and outside of the Fed are concerned that the January directive encourages the financial community to expect a rate hike sooner than the Fed will actually move.

Many don't anticipate a Fed rate hike until at least late 2015.

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"It might be smart not to have a number," Rivlin told CNBC.

Rivlin said that a 6.5 percent unemployment rate could suggest a stronger labor market than is actually the case. And the Fed looks at plenty of other employment data in addition to the jobless rate, she noted.

Meanwhile, Rivlin has no problem with the Fed's 2 percent inflation target.

A Bloomberg survey of 54 economists showed that 76 percent think the Fed will ditch the unemployment rate threshold in favor of linking rate policy to a variety of economic indicators.

"It’s a change in how they deliver the message rather than a change in the message itself," Michael Feroli, chief economist at JPMorgan Chase and a former Fed economist, told Bloomberg.

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New Federal Reserve Chair Janet Yellen should guide the Fed to stop offering a specific unemployment rate as a threshold for considering an interest-rate increase, says former Fed vice chair Alice Rivlin.
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2014-24-19
Wednesday, 19 March 2014 11:24 AM
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