Fed to keep short-term interest rates near zero for 'considerable time,' Yellen says
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.”
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Toyota Yaris adds French flair for ’15
- Mini goes mainstream
- Motoring Q&A: ‘Check engine’ light doesn’t reset itself
- Amazon investors’ patience wears thin
- Bond mutual funds continue to carry their weight
- Stocks rise broadly on earnings; Amazon sinks
- Sell-off reins in complacency
- Faulty air bags in 30M vehicles
- PPG Industries to buy Westmoreland Supply paint store chain
- SEC approves looser mortgage lending guidelines
- PUC approves Columbia Gas pipeline extensions program for homeowners