The Federal Reserve Board of Governors announced Wednesday that it has unanimously decided to increase the probability it will soon raise key interest rates.
Board Chair Janet Yellen said that the the central bank has altered its forecasts, but that any raise in the federal funds rate will be “data dependent.”
A Fed press release noted that its Federal Open Market Committee “anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.”
The report stressed that the FOMC has not decided on the timing of any increase in interest rates, though it “expected inflation to rise gradually” with both the job market improving and the US economy adjusting to the “effects of energy price declines and other factors.”
The FOMC did use language designed to keep the market guessing. Its press release on Wednesday noted that it has since January received reports that indicate “economic growth has moderated somewhat.” It also stated that “even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.”
Indeed, in a public briefing with reporters, Yellen noted that the housing market is “subdued,” that exports have declined, and that falling energy prices have reined in inflationary forecasts–all factors hinting at a lack of upward pressure on interest rates. She also noted that the effects of last decade’s global financial crisis will be felt “for some time,” through lower levels of spending and credit availability.
But when discussing a possible increase in the federal funds rate as soon as June, Yellen refused to “rule that out.”
She said that job market data, surveys about inflation and expectations, and “readings on financial and international developments” will inform the Fed’s decision, and described the choice as being “data-dependent.”
The decision to not rush any interest rate increase while being vague about the timing of the impending hike is designed to diminish the chance of a market shock. As The Sentinel noted last year, a Treasury Department report found that Americans widely anticipate to face higher interest rates soon, but that a sudden 1 percent uptick in rates could cause US bond mutual funds to lose over 5 percent of their value.
At the press conference, Yellen also discussed the debate between the central bank and legislators over transparency.
When asked by a reporter, Yellen again rejected the growing chorus call emanating from some quarters of Congress to subject the Federal Reserve to more oversight. She described the body as “one of the most transparent central banks” in the world, and said that forcing the Fed to submit its monetary policy deliberations to Government Accountability Office reviews would have a negative impact and infringe upon the central bank’s independence.
“I think the Federal Reserve works well,” she said, while noting that it is up to Congress to review whether that is the case.
Yellen also noted, in response to another reporter’s question, that the Federal Reserve has “arranged to brief members of Congress who have asked” about the bank’s internal investigations into an October 2012 leak of FOMC deliberations.
As The Sentinel has reported, Sen. Elizabeth Warren (D-Mass.) and House Oversight Committee ranking member Elijah Cummings (D-Md.) are among lawmakers who are seeking information about the probe. In early February, the pair said in a letter to Fed General Counsel Scott Alvarez that they are “disturbed by this lack of transparency regarding such an important topic” and pressed him for more details. Later in the month, Warren told Yellen at a hearing that she still hadn’t received a response to the duo’s request.
