Federal Reserve chair Janet Yellen is spoke in Washington following the release of the Federal Open Market Committee statement Wednesday.
The statement, which summarizes the Fed’s outlook on the economy after this week’s two-day FOMC meeting, dropped the language previous about interest rate policy — that the Fed can be “patient” in approaching interest rate hikes — with language that says current interest rate policy “remains appropriate.”
During the press conference, Yellen said that “just because we removed the word ‘patient’ doesn’t mean we’re going to be impatient.”
“Participants are now seeing more slack in the economy than they previously did,” she said.
Yellen said that the Fed likely won’t raise rates in April, but after that raising rates is on the table “depending on how the economy evolves.” However, it’s too soon to say when beyond that rates will rise. Yellen said that people shouldn’t necessarily expect that rates will change at the June meeting, but no one should rule that out. It all depends on the data.
Job growth has been fantastic in the last 12 months, but other economic data points have been soft in the last couple of months — likely because of weather and the recent port strike on the west coast, but the Fed will want to wait to see if things firm up this spring.
Yellen said that there isn’t a simple answer to what the data needs to say in order to raise rates. “We need to watch the data continue to reformulate our forecasts… to where the economy is going,” she said.
She mentioned that wage growth hasn’t been as strong as the committee would have liked, but there doesn’t necessarily need to be wage growth for rates to go up. She also said that there is a risk of waiting too long to raise rates.
Yellen also said that even once rates start to go up, they may not reach long-term “normal” levels for some time.
Look for Yellen to address a lot of clarifying questions about the Fed’s position on interest rates.
Even though the FOMC changed the “patient” language, this doesn’t necessarily mean the Fed will hike rates right away. Wall Street is still torn between a June rate hike and September — although most analysts think it will be one of the two.
Here’s a roundup from the reaction on Twitter:
Yellen appears to have threaded the needle of eliminating forward guidance, without tightening monetary conditions. Well played.
— Justin Wolfers (@JustinWolfers) March 18, 2015
“Wage growth remains sluggish suggesting that some cyclical weakness persists”
— Joseph Weisenthal (@TheStalwart) March 18, 2015
WOW. A pick-up in wages is NOT a pre-condition for the Fed to raise rates.
— Myles Udland (@m_udland) March 18, 2015
Yellen on FOMC’s new unemployment forecasts: “Participants are now seeing more slack in the economy than they previously did”
— Matthew B (@boes_) March 18, 2015
yellen’s speech on certainty/uncertainty and market participants forming their own expectations = RIP forward guidance
— Guillermo :( (@groditi) March 18, 2015
Shorter Yellen: The dollar’s gone up about as much as we want it to, and we think unemployment can go lower than we used to.
— Matt O’Brien (@ObsoleteDogma) March 18, 2015