Janet Yellen, Federal Reserve chairwoman, said on Wednesday the Fed still expected to start raising interest rates next year, but that it would wait patiently for the right time and did not expect to begin earlier than late April.
Yellen’s remarks, and a statement issued by the Fed’s policy-making committee, both emphasized the nation’s central bank was not inclined to act more quickly in light of positive economic news, including stronger job growth and plummeting oil prices. “The committee considers it unlikely to begin the normalization process for at least the next couple of meetings,” Yellen said at news conference after a two-day meeting of Fed policy makers. In response to a question, she said she meant two meetings, ruling out scheduled sessions in January and March.
Stock markets, which have jittered up and down in recent days, rose sharply after the Fed released its statement at 2 p.m. Standard & Poor’s 500-stock index rose 2% to close at 2,012.89, its largest daily percentage gain of the year. “The Fed is in the fortunate position of enabling the economy to gather steam without the shadow of immediately rising rates,” said Paul Atkinson, head of North American equities at Aberdeen Asset Management, a British firm with $525 billion in investments. “In our opinion, that has to be positive for equity investors.”
Bond markets moved in the opposite direction as traders struggled to weigh the impact of the Fed news and events in Russia. The yield on the benchmark 10-year Treasury rose to 2.14% from 2.08% late Tuesday.
For almost a year now, Fed officials have pointed toward the summer of 2015 as the most likely time for the long-awaited lift of short-term interest rates, which the Fed has held near zero since December 2008.
Fifteen of the 17 Fed officials who participate in meetings of the Federal Open Market Committee said the first rate increase would come in 2015, according to an aggregation of their economic outlooks also published on Wednesday.
The job market has not healed completely, but Yellen and other Fed officials say the economy is now strong enough to allow them to start raising rates toward more normal levels next year. Employers added, on balance, a monthly average of 224,000 jobs over the 12 months ending in November, including 321,000 jobs in November. The unemployment rate has fallen to 5.8% from 7%.
Officials predicted the unemployment rate would fall into a range they regard as healthy for the economy in 2015, ending the year between 5.2 and 5.3%.
Fed officials have also expressed relatively little concern about the collapse of oil prices, the crumbling of the Russian economy or turbulence in global markets.
Yellen said on Wednesday that lower oil prices were “certainly good” for American consumers, who have more money to spend. As for Russia, she said the exposure of the American economy and financial system was “actually relatively small.”