When the Federal Reserve announced last week that it would not be increasing the federal funds rate in November, speculation ran rampant on whether a rate hike would be coming after the next meeting of the Federal Open Markets Committee in December.
In typical Fed fashion, the language was vague when it came to timing of a rate increase but that didn't stop observers from attempting to read the Fed’s tealeaves to determine when a rate hike may be coming.
“The current 0 to 1/4% target range for the federal funds rate remains appropriate,” the FOMC said in its statement.
“In determining whether it will be appropriate to raise the target range at its next meeting, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2% inflation,” the FOMC continued.
“This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments,” the FOMC continued. “The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective over the medium term.”
The mention of the FOMC’s next meeting in the Fed statement lead many to believe that a rate hike may indeed be coming in December.
Speaking Wednesday before the House Financial Services Committee, Fed Chair Janet Yellen formalized the possibility of a rate hike in December, telling the Committee that December’s meeting is a “live possibility” for a rate increase.
From the Wall Street Journal recap of Yellen’s testimony:
The Fed expects “the economy will continue to grow at a pace that’s sufficient to generate further improvements in the labor market and to return inflation to our 2% target over the medium term, and if the incoming information supports that expectation, then our statement indicates that December would be a live possibility,” Ms. Yellen said Wednesday while testifying before the House Financial Services Committee. “But importantly, we’ve made no decision about it.”
The Fed has not raised interest rates since June 2006.
Before September’s FOMC meeting, there was some speculation that the Fed could rate rates in September, but that didn’t happen.
At the time, the FOMC said “To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4% target range for the federal funds rate remains appropriate."
The FOMC also said that in determining how long to maintain this target range, “the Committee will assess progress—both realized and expected—toward its objectives of maximum employment and 2% inflation."
Speaking Wednesday, Yellen also said that “moving in a timely fashion, if the data and the outlook justify such a move, is a prudent thing to do because we will be able to move at a more gradual and measured pace. We fully expect that the economy will evolve in such a way that we can move at a very gradual pace, and of course, after we do so, we will be watching very carefully whether our expectations are realized.”