The 6.5 % jobless benchmark went out the window, along with Wall Street’s composure, when Fed Chair Janet Yellen announced that the Fed may be hiking the interest rates sooner than expected. And frankly, the jobless rate is no longer a strong enough indicator of when the hiking should take place… Janet’s startling comments during her first meeting as chair, signaled that rates could rise after bond purchases cease.
Janet Yellen says, “The language that we use in this statement is considerable, period. So this is the kind of term it’s hard to define but probably means something along the order of around six months or that type of thing. But you know it depends. What the statement is saying, as the statement is saying, it depends on what conditions are like.
“We need to see where the labor market is, how close are we to our full-employment goal. That would be a complicated assessment, not just based on a single statistic and how rapidly we are moving toward it. Are we moving close and moving fast, or are we getting closer but moving slowly.”
The number of policymakers that expect rates to move higher starting next year is increasing… with a small jump from 13 at this meeting compared to 12 at the last. However, the Fed’s forecast for the next two years hasn’t changed very much… it still doesn’t expect inflation to go up… as to where a rate spike would be required.
Janet Yellen says, “The committee is mindful that inflation running persistently below its objective could pose risks to economic performance. The committee also recognizes, however, that policy actions tend to exert pressure on inflation that is manifest only gradually over time. The FOMC will continue assessing incoming data carefully to ensure policy is consistent with attaining the FOMC’s longer run objectives of maximum employment and inflation of 2%.”
In spite of the certitude, markets had a very specific way of interpreting Janet Yellens’ out-of-the-gate move. LPL Financial’s Anthony Valeri…
Anthony Valeri, Senior V.P. of Fixed Income Research at LPL Financial, says, “I think it was a slightly, in terms of bonds, it was a slightly more negative interpretation. It basically reiterated the fact that the Fed’s on pace to remove accommodative policy and that eventually they are going to raise interest rates. I think one of the most negative aspects of today’s Fed meeting was that the Fed increased the timing or the amount of rate hikes that we’re going to see and pushed them forward.”
Yellen claims the new guidance is just a reflection of the Fed wanting to share more information. But frankly, the market’s confusion is a pretty clear response to this “info session.”