For several years now, the Federal Reserve has offered investors "forward guidance," assuring them that short-term interest rates would be kept at record lows for some time.
But the Fed might have put an end to forward guidance with its removal of the word "patience" from its policy statement Wednesday. The word was used to describe the central bank's stance toward raising interest rates.
The Fed has kept its federal funds rate at a record low of zero to 0.25 percent since December 2008, but it now setting the stage to begin raising rates.
Nobel laureate economist Robert Shiller of Yale University said the Fed was shrewd to use forward guidance and would be shrewd to drop it as well.
"Forward guidance was an act of desperation," he explained on Bloomberg TV
. "They had rates at zero. They had to find something else. It was a neat idea. Talking about future interest rates is another policy tool." And it worked, Shiller said.
"Now they may not need it so much if we're going into a tightening phase."
Before the Fed's statement Wednesday, many experts expected the central bank to begin increasing rates in June or July. But now some wonder if the timetable has been extended.
"The [Federal Open Market] Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term," the statement read.
"What's important about this part of the statement is that it clearly says the FOMC is looking for 'further' improvement, meaning the economy and labor market has not yet met whatever criteria necessary to warrant a rate hike," Dan Greenhaus, chief strategist at BTIG, wrote in a commentary obtained by CNBC
"We remain of the belief the Fed will first raise rates in September and view this statement, and the projection changes, and reducing the odds of a June hike."
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