SAN FRANCISCO The Federal Reserve has effectively communicated its commitment to ultra-easy policy, so that economists and traders correctly understand that interest rates will likely stay near zero until "sometime in 2015," according to a Fed study published on Monday.
The paper, published in the latest Economic Letter from the Federal Reserve Bank of San Francisco, looks in detail at data through late May. At that time, the researchers said, investors and economists expected a first Fed rate hike around mid-2015, based on economist surveys and Treasury yields interpreted in light of near-zero rates.
Although the paper does not explicitly say so, the decline in market rates since May -- when Fed Chairman Bernanke offered a timeline for the end of the Fed's massive bond-buying program that now sees too aggressive -- suggests that traders may now see the Fed's first rate hike as coming even later.
Convincing the public that the U.S. central bank will keep rates low for a long time is a key pillar of the Fed's super-easy monetary policy, which seeks to stoke investment and hiring by keeping borrowing costs down.
Economist surveys and U.S. Treasury yields both show that most are buying the idea that low rates are here to stay for quite a while, the paper said.
"Our estimates suggest that the (Fed)'s forward guidance has been effective in pushing out the expected liftoff horizon, which has contributed to lower interest rates, easing financial conditions and adding stimulus to the economy," wrote San Francisco Fed economist Michael Bauer and the bank's research director Glenn Rudebusch.
"Recent estimates of policy liftoff generally suggest the first funds rate hike will occur sometime in 2015."
The authors cautioned that reading expected future rate rises in the Treasury yield curve requires more finesse than simply looking at the first point on the graph where Treasury yields suggest rates could rise.
Reading the yield curve in such a simple way "will generally underestimate the time until liftoff" based on the Fed's own forecasts and those of economists, the authors said, because near-zero short-term rates distort the curve as a reading of the most likely timing of a rate hike.
A case in point: In May 2013, a simple reading of the yield curve would have suggested the first Fed rate hike as coming in September 2014 -- more than six months earlier than could be concluded using the authors' own model of interpreting forward rates.
"Interpreted correctly, both the survey and market measures of policy liftoff appear generally consistent with the (Fed)'s formal guidance," they wrote.
The Fed does not in its formal statement provide a date for when it expects to begin to raise rates. It does publish forecasts from Fed policymakers, the majority of whom see rates first rising in 2015.
Exactly when in 2015 is still an open question. And on that score, the San Francisco Fed researchers are silent.
(Reporting by Ann Saphir; Editing by Leslie Adler)