Quarter 1 Market News & Analysis
Newly appointed Federal Reserve Board Chairwoman, Janet Yellen, completed her first press conference on March 19th. Her first task was to explain their amended timeline for raising interest rates. In December of 2012, the Federal Open Market Committee (FOMC) publicly stated that it wouldn’t even consider raising the short-term interest rate that is sets (the federal funds rate) until the unemployment rate had fallen to 6.5 percent. At that time, the unemployment rate was hovering at 7.8 percent. In the last year, the unemployment rate has fallen rapidly to 6.7%. Markets wonder what the Fed will do if the rate reaches the targeted 6.5 percent. Yellen’s response on Wednesday was that they likely wouldn’t do anything. In a statement about the timing of interest rate hikes, the F.O.M.C. said that would “take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments.” They also suggested that it would be appropriate to maintain its rock-bottom target for the funds rate for a considerable time after its policy of quantitative easing ends. With their current bond buying program drawdown pace, the quantitative easing (bond buying) is likely to end in October 2014. As such, the timing of rate changes will be prompted by the qualitative guidance which would include overall economic health and inflationary pressures. At present, Wall Street isn’t expecting any change to rates until at least spring of 2015.
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