Fed Clarifies Rate Hike Policy

At the conclusion of its most recent meeting (March 19) the Federal Reserve offered new insight as to when there might be an increase in the short-term interest rate. With Chairman Janet Yellen leading her first session with the Fed policymakers, it was decided that they would examine a range of factors to determine the timing of such an increase of the federal funds rate—including job market data, inflation expectations and financial developments. This is a shift from their previous position that near zero percent interest rates would remain for the long-term and be tied to a drop in the unemployment rate. In a post meeting statement, the Fed stated that “The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.” According to some estimates, the first rate hike could occur in 2015. However, the Fed’s statement stressed that even after the short-term interest rate is raised, it will stay at a substantially low level.

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