Fed Chair Yellen, Two years or more away from reaching our goals – IIC Research
By: Ansar Anis Bhesania,
Ismail Iqbal Commodities (Pvt.) Ltd.
In front of the Economic Club of New York, Fed Chair Janet Yellen indicated that, while significant progress has been made, the FOMC does not expect to fully meet its dual mandate for another two years or more. She cited the central tendency of FOMC participant projections for the unemployment rate and inflation as indicating that participants have the committee finally reaching its goals of maximum employment and price stability only by the end of 2016. We read this as a not-so-subtle signal that, although the committee has gradually begun to remove its outright commitment to low rates and balance sheet expansion, the Fed is in no hurry to accelerate the trend or initiate a rate hike cycle.
She spent the latter part of her speech discussing the change to qualitative guidance, saying that the change did not mean a change in the committee’s reaction function or policy intentions, but instead reflected the gradual closing of the gap towards the Fed’s mandate and the need to be more qualitative with less outright forward commitment. She reaffirmed the committee anticipates that the funds rate will be at the zero bound for “a considerable time after the asset purchase program ends” without making reference to “six months” or any other length of time as a definition, and said the funds rate will be lower than normal in the longer run after liftoff due to residual headwinds from the crisis.