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Yellen forecasts a slow rise in interest rates - The Fed - MarketWatch
June 18, 2014, 4:57 p.m. EDT
Yellen forecasts a slow rise in interest rates
Bank votes to reduce economic stimulus again by cutting bond purchases
By Greg Robb, MarketWatch
WASHINGTON (MarketWatch) — Federal Reserve Chairwoman Janet Yellen was more kitten than lion on Wednesday, sticking to her guns that the central bank can hold short-term interest rates steady until the middle of next year and then raise them gradually, and downplaying recent strong inflation readings.
AFP/Getty Images
Federal Reserve Chair Janet Yellen speaks during a press conference following the June Federal Open Market Committee meeting.
In its latest dot-plot forecast, the Fed did see a slightly faster pace of tightening in the cards. But the slight increase was overlooked by the market that focused more on Yellen’s remark that the recent inflation data was “noisy.”
The S&P 500 index (SNC:SPX) jumped to a record close following Yellen’s remarks.
In contrast to Bank of England Governor Mark Carney, Yellen suggested the Fed is comfortable that it can hold rates steady for a considerable time after it ends its asset purchase program. Last week, Carney warned that the first interest-rate hike could come sooner than the market expected.
Economists said the latest Fed projections point to a first rate hike in June 2015. Short-term interest rates have been steady near zero since December 2008.
THE FEDERAL RESERVE
• Live blog and video of the Fed decision and press conference
• First Take: Janet Yellen’s no more confident than the rest of us
Fed officials tweaked their forecast for interest rates at the end of 2015 from the bank’s 1% estimate in March. The Fed now sees the fed funds rate closer to 1.25% by then.
The dot plot also showed the fed funds rate was likely to rise closer to 2.5% in 2016 instead of 2.25% as previously predicted.
At the same time, the Fed lowered its forecast for “longer run” interest rates to 3.75% from closer to 4%. The last change is important because it signals the central bank won’t push up interest rates all that high during this recovery phase.
Most Fed officials are reluctant to raise interest rates too rapidly too soon because the level of unemployment is still historically high almost five years into an economic recovery, especially among people who have been out of work six months or longer.
Even the surprising sharply drop in the official U.S. unemployment rate over the past year to 6.3% has not persuaded Fed officials that the labor market is recovering as fast as the central bank hopes.
Some of the drop reflects people leaving the labor force because they’re too discouraged about finding work, Yellen said in a press conference after the bank meeting. “We’ve had an unusually long duration of unemployment,” she said.
Economic rebound
The central bank’s policy statement that was nearly identical to the previous one issued in April. Only its description of the economy was changed — and in a way to make it more upbeat.
The Fed said that growth “has rebounded in recent months” and the labor market indicators “generally showed further improvement.” The central bankers noted that business fixed investment had “resumed its advance” after saying that it “edged down” in April.
The only negative comment was that the housing sector “remained slow.”
Federal Reserve
The Fed repeated that it expects to hold rates steady for a considerable time after its bond-buying program ends.
The central bank again stressed that even after the Fed starts to tighten, economic conditions may warrant keeping rates below normal.
Bowing to the inevitable, the Fed trimmed its growth forecast for 2014 because of the weak report on gross domestic product for the first quarter. But that weakness did not cause any revisions to the stronger growth of above 3% in 2015.
The Fed trimmed its forecast for unemployment, but officials did not materially change their forecast for inflation despite some higher-than-expected inflation data over the past three months. Inflation would stay at or below 2% through 2016.
Yellen said she believes the recent spike in consumer inflation reflect some “noise” that’s exaggerated the upward rise in prices. The risks of higher inflation still remain low, she said.
The vote by the Fed policy committee was 10-0. There are two vacancies on the Fed Board of Governors.
June 18, 2014, 4:57 p.m. EDT
Yellen forecasts a slow rise in interest rates
Bank votes to reduce economic stimulus again by cutting bond purchases
By Greg Robb, MarketWatch
WASHINGTON (MarketWatch) — Federal Reserve Chairwoman Janet Yellen was more kitten than lion on Wednesday, sticking to her guns that the central bank can hold short-term interest rates steady until the middle of next year and then raise them gradually, and downplaying recent strong inflation readings.
AFP/Getty Images
Federal Reserve Chair Janet Yellen speaks during a press conference following the June Federal Open Market Committee meeting.
In its latest dot-plot forecast, the Fed did see a slightly faster pace of tightening in the cards. But the slight increase was overlooked by the market that focused more on Yellen’s remark that the recent inflation data was “noisy.”
The S&P 500 index (SNC:SPX) jumped to a record close following Yellen’s remarks.
In contrast to Bank of England Governor Mark Carney, Yellen suggested the Fed is comfortable that it can hold rates steady for a considerable time after it ends its asset purchase program. Last week, Carney warned that the first interest-rate hike could come sooner than the market expected.
Economists said the latest Fed projections point to a first rate hike in June 2015. Short-term interest rates have been steady near zero since December 2008.
THE FEDERAL RESERVE
• Live blog and video of the Fed decision and press conference
• First Take: Janet Yellen’s no more confident than the rest of us
Fed officials tweaked their forecast for interest rates at the end of 2015 from the bank’s 1% estimate in March. The Fed now sees the fed funds rate closer to 1.25% by then.
The dot plot also showed the fed funds rate was likely to rise closer to 2.5% in 2016 instead of 2.25% as previously predicted.
At the same time, the Fed lowered its forecast for “longer run” interest rates to 3.75% from closer to 4%. The last change is important because it signals the central bank won’t push up interest rates all that high during this recovery phase.
Most Fed officials are reluctant to raise interest rates too rapidly too soon because the level of unemployment is still historically high almost five years into an economic recovery, especially among people who have been out of work six months or longer.
Even the surprising sharply drop in the official U.S. unemployment rate over the past year to 6.3% has not persuaded Fed officials that the labor market is recovering as fast as the central bank hopes.
Some of the drop reflects people leaving the labor force because they’re too discouraged about finding work, Yellen said in a press conference after the bank meeting. “We’ve had an unusually long duration of unemployment,” she said.
Economic rebound
The central bank’s policy statement that was nearly identical to the previous one issued in April. Only its description of the economy was changed — and in a way to make it more upbeat.
The Fed said that growth “has rebounded in recent months” and the labor market indicators “generally showed further improvement.” The central bankers noted that business fixed investment had “resumed its advance” after saying that it “edged down” in April.
The only negative comment was that the housing sector “remained slow.”
Federal Reserve
The Fed repeated that it expects to hold rates steady for a considerable time after its bond-buying program ends.
The central bank again stressed that even after the Fed starts to tighten, economic conditions may warrant keeping rates below normal.
Bowing to the inevitable, the Fed trimmed its growth forecast for 2014 because of the weak report on gross domestic product for the first quarter. But that weakness did not cause any revisions to the stronger growth of above 3% in 2015.
The Fed trimmed its forecast for unemployment, but officials did not materially change their forecast for inflation despite some higher-than-expected inflation data over the past three months. Inflation would stay at or below 2% through 2016.
Yellen said she believes the recent spike in consumer inflation reflect some “noise” that’s exaggerated the upward rise in prices. The risks of higher inflation still remain low, she said.
The vote by the Fed policy committee was 10-0. There are two vacancies on the Fed Board of Governors.
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