Did Yellen Learn From Greenspan?
EconMatters | Dec 18, 2014 03:01PM ET
EconMatters has been critical of Fed's new found dovishness. Judging from the FOMC statement released on Wednesday Dec. 17, Fed made a concerted effort (to keep Wall Street happy) keeping a spot for that infamous "considerable time" language. However, technically speaking, the phrase is actually a reference of timing, not exactly part of FOMC current policy statement. Below is the exact language:
Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. The Committee sees this guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program in October, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.
In the Q&A session of the press conference, Chairwoman Yellen said "The committee considers it unlikely to begin the normalization process for at least the next couple of meetings.” So the general consensus interpretation is that Fed is in no hurry to raise rates till at least April of 2015 unless the economic condition takes a drastic turn (better or worse).
Nevertheless, Fed is running out of excuse to keep rates at near zero beyond 8 years. Employment is up, inflation is moderate (enhanced by the recent lower oil/fuel prices), and corporate profits are up.
Now the more intriguing question for markets is when the Yellen Fed will start raising rates? The Greenspan Fed started gradually raising rate in June 2004, roughly 5 months after dropping the "considerable time" language in Jan. 2004. So if we continue the train of thought by CFR, we probably could expect a rate raise somewhere in Q2 of 2015.
Greenspan was criticized by some for keeping the loose monetary policy far too long leading to the housing bubble, which was a main contributing factor to the 2008 financial crisis. When it comes to the Federal Reserves, past performance could have more relevance to future results. Ms. Yellen would be prudent to learn from history and not to repeat the similar missteps.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.