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No Policy Changes at Fed Meeting - Fed Chair Yellen Asked If Fed Will Ever Raise Rates


No Policy Changes at Fed Meeting - Fed Chair Yellen Asked If Fed Will Ever Raise Rates

The fourth FOMC meeting of the year ended this afternoon with no surprises. The FOMC policy statement had no policy changes. Even though the statement had no mention about the timing of a rate hike, the Fed’s updated economic projections still suggest that a rate hike before the end of the year remains very likely. Out of 17 FOMC participants, 15 expect the first rate hike to be in 2015. Only 2 think it’ll be in 2016. These are the same numbers as the last update in March. However, the Fed’s dot plot which shows the expected Fed funds rate for the next three years has some changes. More of the Fed members think the rates will rise slower from 2015 to 2017.

After the FOMC statement and the updated economic projections were released, Fed Chair Janet Yellen held a press conference. She continues to stress that a rate hike will depend on improvements in the economy:

My colleagues and I would like to see more decisive evidence that a moderate pace of economic growth will be sustained, so the conditions in the labor market will continue to improve and inflation will move back to two percent,

This makes it easy for the Fed to keep postponing the first rate hike. The updated economic projections don’t give me confidence of a late 2015 rate hike. As compared to March, the GDP for 2015 was revised down and the unemployment rate was revised up slightly. This Calculated Risk Blog post has a good summary of the projections.

I still think we’ll see a few inflation hawks on the Fed vote for a rate hike one or two meetings before the majority on the Fed vote for a rate hike. That didn’t happen this time. All FOMC members voted in favor of today’s FOMC policy statement.

Finally, Fed Chair Yellen was asked a couple of interesting questions at the end of her press conference today. First, a reporter asked her about "unintended benefits of higher rates" in regards to savers. Here’s part of Fed Chair Yellen’s answer:

From the point of view of savers, of course this has been a very difficult period; meaning retirees. I hear from some almost every day are really suffering from low rates that they had anticipated would bolster their retirement income. This obviously has been one of the adverse consequences of a period of low rates.

Right after this, another reporter then asked the following question:

What kind of assurances can you give them and people out there who think the Fed is never going to raise rates?

Here’s part of Fed Chair Yellen’s reply:

I can’t give an ironclad promise, but I think it’s clear from our summary of economic projections that we anticipate that the economy will grow, that the labor market will improve, that inflation will move back up to 2% …. and if economic conditions unfold in a way that most of my colleagues and I anticipate, we see it as appropriate to raise rates, and as you can see the largest number of participants anticipate that those conditions should be in place later this year.

Based on this I still think it’s likely we’ll see a Fed rate hike before the end of this year. Of course, based on how the economy has changed and how the Fed has kept delaying movements toward a rate hike, it’s easy to see the Fed postponing yet again the first rate hike to next year.

Future FOMC Meetings

The next two FOMC meetings are scheduled for July 28-29 and September 16-17. The September meeting will include the summary of economic projections and a press conference by Fed Chair Yellen.

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Anonymous   |     |   Comment #1
Treasury yields plummeted Wednesday after Federal Reserve policy makers signaled that, while an interest-rate increase this year remains likely, the pace of rate hikes would be slower than the market expected. In a new conference after the meeting, Federal Reserve Chairwoman Janet Yellen acknowledged that the economy has improved markedly since the first quarter, citing improvements in household spending and consumer sentiment. But the central bank will likely keep rates low even after employment and inflation have returned to what the Fed would consider “normal” levels, she said.
Shorebreak   |     |   Comment #2
Let's be honest. The threat of Mr. Market throwing a tantrum prevents the Fed from ever "normalizing" interest rates.
Anonymous   |     |   Comment #14
The ten year bond retraced the fall Thursday morning.
Anonymous   |     |   Comment #23
Then plummeted worse on Friday.
Anonymous   |     |   Comment #3
All this talk about what the FED will do is just a big waste of time. The FED can never increase interest rates. They need to keep the stock markets up at all costs. It would be devastating to pensions, annuities, insurance accounts, 401k accounts, IRAs, government investments, etc. if the stock markets dropped. It is too bad that so much of our so called "wealth" is based on the fictitious numbers of the stock markets.
Anonymous   |     |   Comment #5
You can say that again.
Anonymous   |     |   Comment #9
[S]he already has and does on almost every blog post.
Anonymous   |     |   Comment #10
If interest rates go up then it makes the DB pensions more viable. When rates are higher less has to maintained in the plan for each employee. The reason so many retirement plans are underfunded are because of the low interest rates and the expected payouts. 
Anonymous   |     |   Comment #11
The Treasury allowed the pensions several years ago to use a different interest rate in the calculations and thus the "underfunding" is (relatively speaking) a non-issue now...but it was before
Anonymous   |     |   Comment #29
On the other hand, lower rates significantly make retirees' lump-sums of their accrued pension benefits in DB plans, more -  not less -  robust.  That is due to the lower discount rates of providing the benefit. 
Anonymous   |     |   Comment #25
I disagree, the stock market is not a concern of the FED, it is the national debt that is doubled under the democrats and there will be no money in the treasury to pay for even the slightest rise in the rates.
Anonymous   |     |   Comment #26
If the stock market tanks...so does commercial paper, etc. as in 2007, the national debt is manageable so long as the market does not put a premium on that debt (take a look at Greece where the debt is NOT manageable), paying the national debt is relatively simple given the current inflation rate...and even relatively easier if it ramps up.  Get a life!
darth   |     |   Comment #4
Yellen seems very much in the mold of one of those "teaser women" I've had bad experiences with in other contexts.  I don't trust her.
Anonymous   |     |   Comment #8
Tend to agree with you in principle but, surely, your "teaser women" did not actually resemble or otherwise look like her?  yuk
Anonymous   |     |   Comment #12
And what do you or will you look like at 69? What are you accomplishments?  Do you think Bernanke and Greenspan were so leasing to the eye? 
Anonymous   |     |   Comment #13
pleasing to the eye. Sorry Safari makes its own changes. 
Anonymous   |     |   Comment #6
It's not just a Fed issue, it's a supply and demand issue. Other developed countries have rock bottom rates, so why should the US increase rates above market? If US debt is selling just fine at very low interest, why give buyers even more than they're already buying?
Anonymous   |     |   Comment #7
US debt is not 'selling just fine'....the price is artificially elevated because the Fed used printed money (now it is the interest they earned from the printed money) to buy all the Treasuries that the government issues.

If the Fed is not able to print money out of thin air to support the bond market, then the rates will lift off. Where have you think the $4+ Trillion dollars that the Fed had printed for the past 4 years had gone? It went into buying all the US Treasuries to keep the rates at all time low. The investment banks who sold their Treasuries to the Fed used the proceeds to buy stocks. Thus the all time high in the stock market.

The whole US bond and stock market is rigged. The US Treasury bond market is propped up by the Fed, the stock market is propped up by the investment banks (JP Morgan, Goldman Sachs, BofA, Citigroup, etc.). If any of these 2 actors can no longer carry the burden, you will see a selloff the likes you never seen. None of these markets are 'free' anymore.
Anonymous   |     |   Comment #15
Actually Anonymous #6 is at least partly correct. For example, China increased its purchased of US debt by 24 billion from January to April of this year, and Japan just surpassed China as the biggest buyer of US debt. In the global marketplace US debt is not only considered ultra safe but actually pays better interest than most advanced countries. So from a supply and demand, i.e. market based, point of view the Fed is under no pressure to raise rates. 
Anonymous   |     |   Comment #16
From supply/demand...the Fed is under the "gun" to some degree by the speculation/easy credit occurring and wealth accumulation since 2008 for the top 1%...it is an unacceptable risk (primarily to the "big banks) that goes unspoken
Anonymous   |     |   Comment #21
OK re your statements regarding Fed's increasing the monetary supply and the Fed buying T-bonds, however, I'd like some proof re investment banks allegedly buying all those equities with proceeds from sales of bonds to Fed. I also question the broad-brush conclusion of investment markets as rigged. The real problem isn't with the markets but that for the huge majority of folks in the country their financial situation really hasn't recovered from the big dip when taking into account the stagnation of 'real' income over recent decades, the unavailability of jobs available to workers qualified for higher-paying jobs, the unavailability of more hours to work/additional part-time job(s) for part-time employees, and the recent large drop of employed individuals as a percentage of the workforce with its accompanying downward pressure on potential wages for those who are employed. The real problem isn't some rigging of markets but a political paralysis that makes it almost impossible to straighten out some of the problems because (a) the entities and individuals with real economic influence vigorously oppose changes that clearly affect the huge majority of citizens, and (b) much of the huge majority is now convinced the best they're able to do is to get help from programs that are basically keep a lid on a bad situation rather than improving the situation: a political standoff that evolved over decades but resembles a disease that doesn't easily respond to treatment so the "symptons" get treated.
Dave   |     |   Comment #17
Sad, so sad.

The United States was the biggest exporter of goods not so long ago.....

Now the biggest exporter of debt.....

Sad, so sad.
Anonymous   |     |   Comment #18
All b/c of exchange rates (look at what Mexico did within one year of NAFTA as to exchange rates) and non-compliance by foreign producers of  child/prison labor, food safeguards, etc. while the same US firms must comply.
Anonymous   |     |   Comment #19
What non-compliance, safeguards, etc.?  Foreign countries are just that, foreign. They do not fall under the laws of the United States.  As INDEPENDANT countries, they comply to their own laws, rules, and regulations.  The United States does not rule the world.  YET!
Anonymous   |     |   Comment #20
If they want into our marketplace they should play by the same rules here like we do there
Anonymous   |     |   Comment #24
Think of the national debt first, it is most of it in short term treasury bonds. Even a slight move upword will cost billions of dollars just in the extra interest and who will pay that, not the illegal aliens and certainly not most of us, but they will print money to pay the interest on the already printed money and now you know the real dilemma of the FED.
Anonymous   |     |   Comment #27
Since I can't make any interest on the money I save, I have to focus more on saving my money.  That means spending less, and less, and less.  As long as the FED keeps preventing me from aking money on my money, I will keep trying to save more, and more, money.  I guess it's a no win situation.
Anonymous   |     |   Comment #28
While it is unfortunate for most/all to have this interest environment ...there is always an interest-based environment.  For example, before the Great Recession CD rates had been low for a number of years, pensions for less than life are based upon interest rates (and those taking an annuities--rather than a life pension--have seen great increases with the lower rates, i.e. payments inversely proportional to % rates), etc.  Thus, I see it as principal perseverance from the get go where savings are always "king" (and the rate is an interest kicker). 

And, anyone with a home that is debt free can perhaps downsize and carry the paper (probably with a big down payment from the buyer for "security") and obtain the "good" historical interest rate on the loan amount.  There are ways to do something that is relative risk free in this interest rate environment.  But it starts with more savings, less/no debt, living within a budget, and cutting expenses (the latter raises income!).
Anonymous   |     |   Comment #30
That is exactly what the FEDs want you to do, be a sucker and keep the money in the bank, which buys treasury notes with it and you are actually financing the national debt for free. If millions of people do the same thing, why raise the rates at all, free financing of the national debt is priority.
Anonymous   |     |   Comment #31
Your point is not clear...please expand without the name calling.  thanks
Thinker   |     |   Comment #33
They won't let you get away with that. They are going to inflate their way out of the box they are in, and that means debasing the money. So, save as much as you want. It will never be enough, because its fundamental value will be stripped away. It is just a matter of time.
Thinker   |     |   Comment #32
Here is the problem in a nutshell. Low rates hurt the economy in a multitude of ways. But, the Fed is in a box. It cannot raise rates. If it does, a majority of the pension funds, which have purchased stocks and bonds at highly inflated prices, based on the low rates and heavy influx of "liquidity" (ie: newly printed money) will collapse. The US government will also collapse because its revenues are about $2 trillion and its expenses about $3 trillion, and it must borrow nearly $1 trillion every year now.  It will be impossible to service this ever-growing debt if rates rise significantly.
DCGuy   |     |   Comment #34
"Savers need to stop whining. The Fed's job isn't to guarantee savers a good risk-free return. The Fed's job is to keep the economy in the Goldilocks zone where it's not growing so fast that inflation is a problem, but not growing so slowly that unemployment is.  Sometimes doing that means interest rates are high, but right now it doesn't. Inflation is still well below the Fed's 2 percent target, and there are still enough people either looking for work, too discouraged to do so, or hoping to find a full-time job while they hold down a part-time one that it seems like there's still some slack left in the labor market. So there's no economic rationale for raising rates now. Sorry, savers."