Interest rates in the US could be raised as early as the first quarter of 2015, Federal Reserve Head Janet Yellen has identified.
Speaking in her first press conference as Chairman of the Federal Reserve, Ms Yellen outlined that she would consider increasing rates around six months after the Fed cease their monthly bond-purchasing programme, though no categorical confirmation was given about when this will occur.
Her comments were made on the back drop of the Fedís latest announcement about the purchasing programme, in which it was revealed that they would be decreasing their total spending on the initiative by a further $10 billion per month.
It means that the Fed have now scaled down their stimulus programme three times now in the past year, with a substantially smaller $55 billion dollars being allocated to it each month compared to $85 billion in 2013.
“This is the kind of term it’s hard to define,” Ms Yellen said at a press conference. “Probably means something on the order of six months, or that type of thing.”
It is widely believed that the aforementioned bond purchases will come to an end in the third of fourth quarter of this year, which would mean that rates would likely be raised around spring 2015.
ëWide range of informationí
The Fed initially decreased overnight interest rates to their historic low of 0% back in 2008, as a part of a stimulus campaign that they hoped would remedy the damage done to the economy from the global recession.
The US economy was particularly damaged by the financial crisis, and a high number of workers found themselves out of employment as a direct consequence. Reducing interest rates was cited as a necessary measure in order to bolster consumer spending power and personal finances, so that the economy could begin growing again in the post-recession era.
At the same time, the Fed supplemented their interest rate policy with a bond buying programme that was intended to retain cheap borrowing costs, encourage and enhance business expansion and stimulate the economy so that a greater number of jobs were created.
Thus far, the programme has not had as substantial an impact on the countryís economic and financial condition as was first hoped, though there have been signs recently that the economy is picking up and is starting to head in the right direction.
The improvement has led to the Fed reducing the level of finance pumped into their stimulus programme for the past three months in a row, though the Fed have identified that they will consider a multitude of different factors before implementing a rate rise in the future.
One factor that has been hinted in the past was unemployment, with the Fed suggesting that they may instigate a rise when unemployment falls below 6.5% in the US.
“This assessment will take into account a wide range of information, including measures of labour market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments,” it said.
Stock markets slide
Following Ms Yellenís press conference, the US stock markets took a hit, with market experts arguing that the slide is likely due to investors inferring that rates will rise prematurely.
“The Fed moved the goal post again,” said David Molar, managing director at Hightower.
“It goes from a 6.5% unemployment threshold to a qualitative approach which is nebulous for the market.
“No one knows what will trigger further tapering, a pause in tapering or an increase in asset purchase. It’s a major change in policy.”
Mark Grant, managing director at Southwest Securities added:
“What seems to be troubling the market is that even though it reiterated that it wouldn’t be raising rates this year, people were put on notice that a hike is coming.”
“We’ll likely see some rise in short rates as a result of this, if not out across the whole curve.”