YELLEN: Rate Increases Cannot be Ruled Out

Photo Credit: Federal Reserve, March 18, 2015

Photo Credit: Federal Reserve, March 18, 2015

Federal Reserve Chair Janet Yellen calmly stated at a press conference that a rate increase in June cannot be ruled out. Yellen added for the Federal Reserve to raise rates, there must be “further improvement in labor markets,” and inflation will need to go back to its 2% target over the medium term. The Federal Reserve downwardly adjusted their inflation forecast for 2015. Low energy prices and low wage growth are holding back inflation in the United States. Economic and data metrics will be key determinants if the Federal Reserve will change rates in June.

Yellen commented on the Federal Reserve’s monitoring of financial stability – viewing it as moderate for now. She said, “overall measures of the equity markets are on the high side.” Yellen also saw the U.S. corporate debt market having unusually low spreads.

The Word Patient

Notably, the word “patient” was removed from the March Federal Open Market Committee (FOMC) statement after the two-day meeting that ended on March 18th. In December 2014, the FOMC statement read the Federal Reserve “can be patient in beginning to normalize the stance of monetary policy.” Federal Reserve Chair Yellen in her comments emphasized the removal of the word “patient” does not mean the central bank will be impatient on monetary policy. Money managers believe the pace of rate hikes will likely be extremely gradual.

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