Deliberate doves

25 September 2015 By Daniel Indiviglio

The U.S. central bank has so far delayed raising interest rates from zero. Janet Yellen tried on Thursday to reduce uncertainty over when liftoff will come. But the Fed’s caution will continue even after that. Rates aren’t heading to historically normal levels anytime soon.

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U.S. Federal Reserve Chair Janet Yellen said on Sept. 24 that she expects the U.S. central bank to begin raising interest rates later this year as long as inflation remains stable and the U.S. economy is strong enough to boost employment.

The Fed said on Sept. 17 that it would not raise the federal funds rate. The overnight policy borrowing rate has been near zero since December 2008 and has not increased since June 2006.

Investors reacted to Yellen’s cautious tone following that announcement by complaining of mixed messages and pushing expectations of a rate hike out to March of next year, from December previously, based on futures markets.

Yellen, however, said in her Sept. 24 speech that it was best not to delay “too long” what should be a “quite gradual” pace of future rate hikes. “The more prudent strategy is to begin tightening in a timely fashion and at a gradual pace, adjusting policy as needed in light of incoming data.”

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