Fed Chair Janet Yellen described how the central bank’s rate-setting policy committee will likely proceed in coming months— an effort to increase the Fed’s flexibility and mute any potential market reaction as the central bank approaches its liftoff date for rate increases.
Her remarks struck a decidedly dovish tone in indicating that it would be a while before the central bank’s Open Market Commmittee makes a move on interest rates.
“The FOMC’s assessment that it can be patient in beginning to normalize policy means that the Committee considers it unlikely that economic conditions will warrant an increase in the target range for the federal funds rate for at least the next couple of FOMC meetings,” Yellen said in prepared remarks before the Senate Banking Committee.
Market expectations had been for a June rate increase, but minutes released from the latest FOMC meeting have led some to speculate that a September move, or later, could be in the cards.
Yellen promised that markets would have plenty of notice.
“If economic conditions continue to improve, as the Committee anticipates, the Committee will at some point begin considering an increase in the target range for the federal funds rate on a meeting-by-meeting basis. Before then, the Committee will change its forward guidance,” she said.
Yellen presents her semiannual monetary policy report to Congress on Tuesday before the Senate Banking, Housing, and Urban Affairs Committee.
While Wall Street expects the Fed to hike rates mid-year, investors will be paying close attention to Yellen’s statement and following question-and-answer session with Congress for guidance on the timing of a potential hike. Currently, the Fed pegs the targeted range for the federal funds rate at 0 to 0.25 percent.
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In weighing when to increase rates, the Fed assesses progress toward reaching its two objections: fostering maximum employment and price stability through a 2 percent inflation rate.
While the labor market has improved, inflation has remained lower than the Fed’s targeted 2 percent rate in part due to lower gas prices.
“It continues to be the FOMC’s assessment that even after employment and inflation are near levels consistent with our dual mandate, economic conditions may, for some time, warrant keeping the federal funds rate below levels the committee views as normal in the longer run,” Yellen said.
Read the full speech Read More here.
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