In particular, the Fed noted that economic activity slowed during the winter months — weakness that in part reflected adverse weather conditions.
“What the statement is saying is it depends what conditions are like,” the Fed Chair explained. “We’d need to see where the labor market is, how close are we to our full employment goal; that will be a complicated assessment, not just based on a single statistic. And how rapidly are we moving toward it? Are we really close and moving fast? Or are we getting closer but moving very slowly?” But basically, “it will be a considerable period after the asset purchase program ends before it will be appropriate to begin to raise rates,” she added.
Yellen stressed that the new guidance does not indicate any change in the policy intentions of the FOMC. Rather, it reflected the changes in economic conditions.
The Fed Chair may have spoken for an hour, but the market only heard three words. When asked how long the central bank would wait to hike rates after the tapering of its monetary stimulus is concluded, she answered with several sentences. “So the language that we used in the statement is ‘considerable period.’ So I, you know, this is the kind of term it’s hard to define,” she responded. “But, you know, probably means something on the order of around six months, that type of thing.” Yellen also added numerous qualifiers, including further improvements in the labor market, determine the outlook on inflation. But the markets only heard “around six months.”
For now, tapering is on course to end in October or November, and a six-month waiting period, puts the first rate hike in April or May. After her comments, both stocks and Treasury bonds declined. The 10-year note yield increased 10 basis points to 2.77 percent, while the Standard & Poor’s 500 Index fell 1.1 percent to 1,852.68.
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