Despite strong jobs report, Fed policymakers not eager to crank up rates

Despite strong jobs report, Fed policymakers not eager to crank up rates

Policymakers have suggested that mid-2015 is a more likely timeframe for when rates may start their rise.

The Federal Reserve plans to keep interest rates near zero for a “considerable time,” a vow that will be up for debate as policymakers meet in the coming days.

Some have been pushing for the Fed to start pushing rates upwards after a strong jobs report suggests the economy is picking up steam, but others believe the Fed needs to reassure the financial markets that such rates are likely to stay low in order to continue the momentum, and there is still plenty of time to raise it with inflation still low, according to a Reuters report.

San Francisco Fed President John Williams told a media outlet on Monday that “considerable time” is still an accurate way to put how the Fed would describe the timing of when it would raise interest rates again, and that it would not be unreasonable to look for that to happen sometime in mid-2015. Atlanta Federal Reserve Bank President Dennis Lockhart also said in the Reuters report that he was in no rush to drop the vow, which the Fed restated in October, albeit adding that if economic data was strong, that vow could be dropped.

The most recent jobs report showed that payrolls increased by 321,000 nationwide, beating expectations and making headlines, prompting many to wonder what the Fed’s attitude would be now toward interest rates. However, the comments suggest that Fed policymakers still think the vow has plenty of shelf life despite the strong economic report.

It is not unanimous, however, as Jan Hatzius of Goldman Sachs said it makes more sense for the Fed to drop the vow during a news conference with reporters next week rather than wait until the Fed’s next meeting in January, where Fed Chair Janet Yellen is not scheduled to hold a news conference.

The Fed will treat the dropping of that language in a very delicate manner, knowing that investors have relied on a near-zero interest rate for a long time now. Policy history suggests that the Fed will guide investors gently toward a rate hike once that language is dropped so as not to upset markets too much. Likely, policymakers would change “considerable time” to a plea for patience on rising rates to get markets used to the idea.

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