http://www.bloomberg.com/news/2014-09-17/fed-keeps-considerable-time-pledge-as-growth-is-moderate-.html
In a recent press conference, Fed Chair Janet Yellen declared that the Federal Reserve intends to stand by their previous commitments of keeping interest rates very low for a "considerable time." The Fed claims the economy is expanding at a moderately considerable rate. However, Yellen has also stated that inflation rate is still below its 2 percent goal, and that employment rates are slowing down. Some economists, such as chief economist John Silvia of Wells Fargo, have used these statements to explain the Fed's actions, saying that "they want to let the market know they are not ready to raise rates anytime soon." Yellen also noted that the Fed does not intend to set any specific dates or time periods, stating that the Fed's decisions are "highly conditional" and able to change at a moments notice. This reinforces the implication that the economy can be sporadic and unpredictable.
In a recent press conference, Fed Chair Janet Yellen declared that the Federal Reserve intends to stand by their previous commitments of keeping interest rates very low for a "considerable time." The Fed claims the economy is expanding at a moderately considerable rate. However, Yellen has also stated that inflation rate is still below its 2 percent goal, and that employment rates are slowing down. Some economists, such as chief economist John Silvia of Wells Fargo, have used these statements to explain the Fed's actions, saying that "they want to let the market know they are not ready to raise rates anytime soon." Yellen also noted that the Fed does not intend to set any specific dates or time periods, stating that the Fed's decisions are "highly conditional" and able to change at a moments notice. This reinforces the implication that the economy can be sporadic and unpredictable.
The authors of this article do not seem to agree with the Fed, but I think the Fed is showing the appropriate amount of caution. It would be unwise to elevate the interest rates too soon or too quickly given how weak the recovery has been.
ReplyDeleteI think the Fed is right to be cautious and ambiguous to a certain point, any solid time frame or any publicized planned raising of the interest rate would leave a major change in spending and changes in inflation that the Fed does not want to deal with.
ReplyDeleteThe Fed has not seen the strength in the economy to raise rates, but they will have to. Hopefully they do not wait too long before they decide to tighten policy and slow down the economy before there is a much harsher and devastating market realization.
ReplyDeleteI think it's wise that the fed speaks with caution and not set specific dates and time periods. Yellen words have the power to change the way the economy operates. She has to be able to address the public without creating drastic unnecessary changes.
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