The last scheduled FOMC meeting of 2014 ended today. There were expectations that the Fed would be modifying its language on when it plans to make its first rate hike. The language did change a bit in the FOMC statement, but the Fed made it clear that it’s in no hurry to raise rates. The wording "considerable time" was moved around to indicate that the asset purchase program (QE3) did end in October. The Fed added the phrase:
the Committee judges that it can be patient in beginning to normalize the stance of monetary policy.
In a press conference after the release of the statement, Fed Chair Janet Yellen offered some more description of "it can be patient". She said she doesn’t foresee the first rate hike for "at least the next couple of meetings." That will depend on economic conditions. The second FOMC meeting of 2015 will be on March 17-18.
In summary, the Fed remains vague in the timing of the first rate hike. Financial markets are interpreting the new statement language to mean the first rate hike won’t be until next October. Before the statement, the markets had expected the first rate hike in September.
We’ll have to keep waiting for the Fed signal that indicates a rate hike is on the way. With the current language, the Fed can keep us waiting as long as they want.
The best we can hope for is for consistent and strong economic growth. That will eventually force the Fed to hike rates. The Fed released new economic projections after its meeting today, and GDP for 2014 was revised up and the unemployment rate was revised down. That shows economic growth that is exceeding expectations. However, inflation projections were revised down. That gives the Fed more time to hold rates low.
The projections also include FOMC members' expectations for the first rate hike or as it is called in the report, "timing of policy firming." Out of the 17 members, 15 are expecting policy firming to begin in 2015. Two are expecting it to begin in 2016. So I’m still optimistic that we will finally see the first Fed rate hike sometime next year.
For additional overview of the FOMC projections, please refer to this Calculated Risk Blog post.
Future FOMC Meetings
The next two FOMC meetings are scheduled for January 27-28 and March 17-18. The March meeting will include the summary of economic projections and a press conference by Chairwoman Yellen.