In the latest FOMC statement, Federal Reserve Chairwoman Janet Yellen hinted that an interest rate hike might take place around six months after the central bank ends its asset purchase program. However, recent testimonies from Fed officials shows that there is some division when it comes to the interest rate hike time frame.
In his speech this week, San Francisco Federal Reserve President John Williams said that the central bank still plans to stick to its pledge of keeping interest rates at their record lows for an extended period of time. After all, the US economy has yet to show convincing signs of a recovery, which isn’t very evident in the labor sector for now.
The February non-farm payrolls report may have printed a stronger than expected reading, combined with upward revisions in the past couple of months’ figures. However, Yellen has mentioned that the economy is far from reaching full employment and that considerable hiring gains have to be made before calling it a jobs recovery. Do take note though that Yellen decided to scrap the 6.5% unemployment rate threshold, as it is no longer an accurate measure of labor market improvement.
Fed Officials on Interest Rate Changes
Other Fed officials such as Williams think that the recent claim by Yellen was simply a reaction to the latest jobs report and not indicative of future monetary policy biases. The Fed’s outlook will still hinge on whether or not the next jobs figures surprise to the upside or reflect persistent weaknesses.
“That’s not a shift in monetary policy. That’s just a reflection that the economy has gotten a little bit better and interest rates might be just a little higher than people thought before,” he said. While Williams may not be a voting member of the FOMC, he is a close ally of Yellen and may carry some influence in directing monetary policy action.
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