Fed sees no interest rate hike until 2015, but it's getting closer

Fed policymakers indicated Wednesday they're no longer taking a ‘full stimulus ahead’ approach. Some economists predict the central bank will start boosting rates as early as next March, while others say June or a bit later.

Gary Cameron/Reuters
US Federal Reserve Board chair Janet Yellen holds a news conference in Washington September 17. Yellen's news conference follows a two-day meeting of the Federal Open Market Committee.

The day when the Federal Reserve boosts interest rates is drawing closer, even though that day is still a “considerable time” off, to use official Fed-speak.

That’s at least one way to read the modern-day smoke signals sent by the US central bank Wednesday.

Three months have passed since the Fed’s June meeting, yet its chart showing the timing of rate hikes anticipated by Fed policymakers hasn’t changed much: The expectations remain centered heavily in 2015.

Many investors see the rate hike happening around the middle of 2015, and the Fed did nothing Wednesday to dissuade from such views. That calendar date is getting closer.

Some economists predict the Fed will start boosting rates as early as next March, while others say June or a bit later.

These are best guesses. The Fed doesn’t have a preset plan on the timing of a rate hike, but the smoke signals are important because they hint at the path of policies that have major impact on financial markets and the wider economy.

Fed policies of low interest rates have provided major fuel for America’s recovery from recession over the past five years. That recovery is still incomplete, but the policymakers are also mindful that their job includes watching against inflation and financial bubbles, not just promoting a full-employment economy.

The Fed is no longer taking a “full stimulus ahead” approach.

Policymakers are optimistic about the economy, albeit slightly less bullish about growth than they were in June. Their consensus forecast still has gross domestic product rising by more than 2.5 percent for 2015 and 2016, but not exceeding 3 percent.

And they still don’t see inflation exceeding 2 percent – although it may come close to matching that Fed-set target.

At the same time, two of 10 voting members of the policy committee are now counted as “dissenting votes,” seeking to position the Fed for a possible earlier rate hike than markets now expect. Richard Fisher of the Dallas Fed branch joined Charles Plosser of the Philadelphia Fed, who dissented at the June meeting.

A “dot plot” showing the current expectations of committee members on interest rates also showed a change if anything in the direction of higher rates. Each dot represents the views of one committee member, and the median dot suggests the Fed’s rate would reach about 1.25 percent by the end of 2015 and about twice that level a year later. Currently, the rate is at a near-zero level.

The committee also forecasts slightly more improvement in the unemployment rate than it did in June – a factor that may be behind the upward shift in the Fed dots.

For the first time, the dot-plot chart gives the public a glimpse of Fed forecasts for 2017. Policymakers expect by then to see both unemployment and interest rates back to long-run norms.

At a press conference after the statement was released, Fed Chair Janet Yellen said the decision on a rate hike will be driven by what happens in the economy, not by a calendar-driven parsing of the words “considerable time.”

Weakness in Europe or China, for example, could dampen the US economic outlook.

But unless something changes, the positions of those policymaker dots in 2015 are getting closer.

You've read  of  free articles. Subscribe to continue.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.

QR Code to Fed sees no interest rate hike until 2015, but it's getting closer
Read this article in
https://www.csmonitor.com/Business/2014/0917/Fed-sees-no-interest-rate-hike-until-2015-but-it-s-getting-closer
QR Code to Subscription page
Start your subscription today
https://www.csmonitor.com/subscribe