U.S. Fed Rate Hike To Be On 'Meeting-By-Meeting' Basis
Dino Lirios | | Feb 25, 2015 01:22 AM EST |
(Photo : Reuters) U.S. Federal Reserve Chair Janet Yellen holds a news conference at the Federal Reserve in Washington December 17, 2014.
In the Semiannual Monetary Policy Report to the Congress on Tuesday, U.S. Federal Reserve Chair Janet Yellen told the committee that the monetary board would be mulling over raising federal rates on a "meeting-by-meeting" basis, confirming expectations of a rate hike this year, in the months to follow.
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The Fed has not raised rates in 9 years and kept them near zero since the 2008 financial crisis.
"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," said Yellen.
She laid the groundwork for the hike, announcing the Fed's rate-setting policy group's actions as follows: First, to remove the word "patient" from its approach and then next to enter into a frame of mind where increasing rates can occur at any meeting.
Investors and analysts deem this testimony as an indicator to a later liftoff than the anticipated June schedule. Data from CME FedWatch show that traders now see October instead of September as the month to look out for, despite prior speculation highlighting June as the likely timetable.
However, Yellen warned investors not to see a rate hike as necessarily happening at succeeding meetings as the central bank dropping the word "patient" from its guidance should only signal more elbow room for the Fed to move based on market developments.
Yellen's prepared testimony to the congress touched on not only forward guidance but also an overview of the U.S. economy.
She noted that robust jobs data and continued post-financial crisis growth propel the economy forward-consistent with conditions to raise interest rates-however the fragile labor market and low wage situation mars economic recovery.
She adds that uncertainties abound given the feeble state of the global economy and falling inflation.
In particular, Fed policymakers worry that the present low inflationary environment, stemming mainly from the collapse of oil markets, could push the largest Western economy into the same direction as that of Europe and Japan, nations that are currently battling to sustain growth.
The U.S. central bank sees a 2 percent annual inflation rate as its benchmark for overall economic health
as this number is neither too high nor low to distort household and business spending.
TagsU.S., Federal Reserve, Fed rate hike, janet yellen, U.S. economy
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