TribLIVE

| Business

 
Larger text Larger text Smaller text Smaller text | Order Photo Reprints

Fed to keep short-term interest rates near zero for 'considerable time,' Yellen says

Email Newsletters

Click here to sign up for one of our email newsletters.

On the Grid

From the shale fields to the cooling towers, Trib Total Media covers the energy industry in Western Pennsylvania and beyond. For the latest news and views on gas, coal, electricity and more, check out On the Grid today.

'American Coyotes' Series

Traveling by Jeep, boat and foot, Tribune-Review investigative reporter Carl Prine and photojournalist Justin Merriman covered nearly 2,000 miles over two months along the border with Mexico to report on coyotes — the human traffickers who bring illegal immigrants into the United States. Most are Americans working for money and/or drugs. This series reports how their operations have a major impact on life for residents and the environment along the border — and beyond.

By The Associated Press
Thursday, March 20, 2014, 12:01 a.m.
 

WASHINGTON — Janet Yellen tried during her first news conference as Federal Reserve chair to clarify a question that's consumed investors: When will the Fed start raising short-term interest rates from record lows?

Yellen stressed that with the job market still weak, the Fed intends to keep short-term rates near zero for a “considerable” time and would raise them only gradually. And she said the Fed would not be dictated solely by the unemployment rate, which she believes no longer fully captures the job market's health.

Those two points reinforced a message the Fed delivered in a policy statement after ending a two-day meeting on Wednesday. The statement said the Fed will cut its monthly long-term bond purchases by $10 billion to $55 billion because it thinks the economy is steadily healing.

Yellen might have confused investors when she tried to clarify the Fed's timetable for raising short-term rates. She suggested that the Fed could start six months after it halts its monthly bond purchases, which most economists expect by year's end. That would mean short-term rates could rise by mid-2015.

A short-term rate increase would elevate borrowing costs and could hurt stock prices. Stocks fell after Yellen's mention of six months. The Dow Jones industrial average ended the day down more than 100 points.

The Fed's latest statement said its benchmark short-term rate could stay at a record low “for a considerable time” after its monthly bond purchases end. The Fed has been gradually paring its bond purchases, which have been intended to keep long-term loan rates low.

“This is the kind of term it's hard to define,” Yellen said of “considerable time.”

“Probably means something on the order of six months, or that type of thing.”

Though stocks sold off after that remark, the Fed's statement and Yellen's comments made clear that borrowing rates for consumers and businesses could remain low for many more months. She stressed that rate increases, once they occur, would occur only incrementally.

Some analysts said they thought Yellen's reference to six months did not really change expectations for the timing of the Fed's first rate increase.

“We're not sure the comments suggest rates would begin to rise any earlier than the mid-2015 date already priced into rate futures markets,” Paul Ashworth, chief U.S. economist at Capital Economics, wrote in a note to clients.

In fact, Yellen devoted much of her news conference to explaining why the economy still needed a boost from the Fed. She stressed that low inflation and meager pay raises for many workers reflected a weaker recovery than the decline in the unemployment rate might indicate.

“She sounded a lot more dovish than hawkish,” said John Canally, an economist at LPL Financial, referring to someone who favors low rates rather than one who worries more about inflation. “She spent a lot of time talking about how far away we are from full employment.”

Subscribe today! Click here for our subscription offers.

 

 


Show commenting policy

Most-Read Business Headlines

  1. Travelers find direct Web route to Priory’s spirited past in North Side
  2. Pa. improves performance among competitive electric markets
  3. PPG puts brand 1st in strategy to reach commercial paint market
  4. U.S. Steel posts quarterly loss, declares dividend
  5. EPA ordered to ease limits on cross-border air pollution that involves Pennsylvania
  6. Plastcs propel Bayer’s 2Q earnings
  7. Ambridge’s PittMoss takes off with help from TV show, Mt. Lebanon native Cuban
  8. Consol Energy, Range Resources report 2Q losses, plan deeper cuts
  9. Muni bond funds stressed
  10. Stocks end 5-day slide on strong Ford, UPS earnings
  11. Plummeting natural gas prices slash revenue of Marcellus shale producers