Tags: Federal Reserve | rate | strategy | Janet Yellen

WSJ: Fed's Long-Term Rate Strategy Receives Little Market Focus

By    |   Monday, 24 March 2014 01:56 PM


While investors were abuzz over comments from Federal Reserve Chair Janet Yellen last week that the Fed may raise interest rates a bit sooner than they expected, potentially more important information in the Fed's policy statement escaped much attention, The Wall Street Journal reports.

That information is that the Fed will maintain short-term rates at below-historical levels even after unemployment and inflation return to more normal levels.

Fed officials forecast that the jobless rate will stand at 5.2 to 5.6 percent in 2016, that inflation will stand at 1.7 to 2 percent and GDP growth at 2.5 to 3 percent.

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But they see the federal funds at 1.75 to 2.25 percent, well below the 4 percent considered normal for a healthy economy.

The policy statement didn't include an explanation for the sustained low-rate policy, and Yellen said in her press conference that the reasoning differs among her colleagues, The Journal reports.

"For many, it's a matter of headwinds from the crisis that have taken a very long time to dissipate and are likely to continue being operative," she said.

Meanwhile, though many Fed watchers interpreted Yellen's remarks last week to mean the Fed could hike rates as soon as April 2015, San Francisco Fed President John Williams doused that speculation in an interview that appeared in The Washington Post.

"I don’t expect us to start raising interest rates until the second half of 2015," he said. "Any interest rates increases we do have in 2015 will be relatively gradual."

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While investors were abuzz over comments from Federal Reserve Chair Janet Yellen last week that the Fed may raise interest rates a bit sooner than they expected, potentially more important information in the Fed's policy statement escaped much attention.
Federal Reserve,rate,strategy,Janet Yellen
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2014-56-24
Monday, 24 March 2014 01:56 PM
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