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Fed's Yellen makes subtle shift in emphasis

Tuesday, February 24, 2015 - 02:06

Fed Chair Janet Yellen says the central bank is preparing to consider rate hikes on a meeting-by-meeting basis. Bobbi Rebell reports.

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A subtle but powerful message adjustment from Fed Chair Janet Yellen speaking to the Senate Banking Committee about plans for the first interest rate hike since 2006: (SOUNDBITE) JANET YELLEN, CHAIR OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM (ENGLISH) SAYING: "If economic conditions continue to improve, as the Committee anticipates, the Committee will at some point begin considering an increase in the target range for the federal funds rate on a meeting-by-meeting basis. Before then, the Committee will change its forward guidance." Yellen added that the committee will first drop the word "patient" from its statement. That's been part of a phrase used since December to describe the Fed's approach to the timing of an initial rate hike. In terms of the economy, Yellen stressed the Fed is watching many different indicators, and there will be no single trigger to rate hikes. For example, Yellen expressed confidence in the economic recovery but said she was still concerned about weak wages and other signs the labor market is not completely healthy, like the number of part time workers. There's a couple of things the Fed is trying to do here, according to BMO Capital Markets Michael Gregory: (SOUNDBITE) MICHAEL GREGORY, HEAD OF U.S. ECONOMICS, BMO CAPITAL MARKETS (ENGLISH) SAYING: "One is to create the inevitability of rates going up this year, and I think, from a risk management standpoint, from the fact that the U.S. economy doesn't really need zero interest rates anymore, you gotta get them off that zero bound. But that doesn't mean they have to move quite higher. And, so, there is the idea that there is an inevitability, but also the fact that they are still going to be very data dependent on when that first lift off occurs and the subsequent trajectory for rates." The markets moved higher as she spoke hitting new intraday records. (SOUNDBITE) MICHAEL GREGORY, HEAD OF U.S. ECONOMICS, BMO CAPITAL MARKETS (ENGLISH) SAYING: "I think the markets are interpreting this correctly that there is less chance of early rate hikes, more chance of rates remaining lower for longer . And, of course, that is good news for stocks and good news for the bond market as well as we've seen yields fall across the board." According to CME FedWatch, futures contracts show a 56 percent chance the first rate hike will come in September.

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Fed's Yellen makes subtle shift in emphasis

Tuesday, February 24, 2015 - 02:06