Arab Today, arab today yellen pressured to clarify fed rate signals
Last Updated : GMT 05:46:02
Arab Today, arab today
Arab Today, arab today

Yellen pressured to clarify Fed rate signals

Arab Today, arab today

Arab Today, arab today Yellen pressured to clarify Fed rate signals

Washington - AFP

Janet Yellen opens her first monetary policy meeting as Federal Reserve chair Tuesday amid pressure to clear up questions about the Fed's plans for hiking its base interest rate. The Federal Open Market Committee is not expected to move off its current course of steadily tapering its stimulus program in the two-day meeting in Washington. And it will not begin raising the short-term fed funds rate from its bottom-level 0-0.25 percent, where it has been since late 2008. But with the official unemployment rate having fallen faster than expected, and Yellen still believing that the jobs market remains weak, the FOMC needs to distance itself from the 6.5 percent jobless rate it set out more than a year ago as a threshold for when it needs to begin tightening policy. At the same time, the Fed has to be sure that weather has been behind the slowdown in the economy over the last three months. Also demanding extreme caution is the crisis over the Ukraine. "The fallout appears minimal so far, but geopolitical tensions are high," said Jim O'Sullivan, chief US economist at High Frequency Economics. "The crisis could spill over to the US economy through financial contagion and confidence effects." Yellen has pledged continuity from the policies of Ben Bernanke, whom she replaced as Fed chair on February 1. In December Bernanke began the taper of the Fed's five-year-old bond-buying program, meant to hold down long-term interest rates to stimulate investment. Since then $20 billion has been trimmed from the monthly purchases, taking them to $65 billion. But the downturn in economic activity has given Fed policy makers pause to be sure the taper is appropriate. Most economists blame the slowdown on the harsh winter storms that battered the eastern half of the United States between December and February. Yellen showed her bias toward that explanation in late February, when she told a Senate panel that "it is clear that unseasonably cold weather has played some role." A week later, the Fed Beige Book survey of regional economies cited the weather 119 times in explaining sluggish activity. - Eyes on Fed's rate plans - Economists thus expect the FOMC to decide that the economy is reasonably strong, and cut another $10 billion from its bond purchases. But they want to see whether the FOMC adjusts its rate-hike thresholds, of inflation topping 2.5 percent and unemployment falling below 6.5 percent. Inflation is still just 1.1 percent, but the jobless rate was very close at 6.7 percent last month. Analysts say that makes the Fed's guidance for rate-change expectations mixed: the jobless threshold points to an early rate rise, while the tabulated forecasts of the FOMC members put any hike at late 2015. Yellen and others on the FOMC say the official 6.7 percent rate does not reflect the full extent of un- and under-employment in the economy. New York Fed President Bill Dudley last week called the 6.5 percent threshold "obsolete"and said it would be good to "revamp" that guidance. Most analysts expect the FOMC to lower or eliminate the numerical target and switch to more qualitative guidance on their rate-rise expectations. One issue that could possibly hold up that change is that two new members of the FOMC still await confirmation by the US Senate. So Yellen might be reticent to make any policy move before all FOMC members are on board. Eyes then will be on any adjustments to the forecasts of the FOMC members for growth, inflation, and when they foresee the fed funds rate moving off the bottom. In December, all but two of the 17 members present saw the rate unmoved through the end of this year, while only three saw it staying at that level in 2015. Most however believed it would be at 1.0 percent or lower at the end of 2015 -- an indication that they saw inflation remaining a non-threat through next year.

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