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06/21/2022 | Building a National Campaign for a Strong Economy: Fed Up

Federal Reserve Interest Rate Decision and Janet Yellen’s Press Conference—Recap

The Federal Reserve wrapped up a two-day meeting Thursday by leaving its interest-rate target near zero, citing developments in the global economy and financial markets. Fed Chairwoman Janet Yellen left the door open for a rate increase at the central bank’s next meetings in October or December. Find all the action here from the decision, the press conference and market reaction.

The Federal Reserve wrapped up a two-day meeting Thursday by leaving its interest-rate target near zero, citing developments in the global economy and financial markets. Fed Chairwoman Janet Yellen left the door open for a rate increase at the central bank’s next meetings in October or December. Find all the action here from the decision, the press conference and market reaction.

  • WILL THEY OR WON’T THEY? Almost seven years after pushing interest rates to nearly zero, Federal Reserve officials are now wrapping up a two-day meeting with a vote about whether to lift rates for the first time in a long time. Investors and policy makers around the world, as you may have noticed from weeks of market turbulence, are watching closely.

    Few moves from the Fed have generated as much protracted angst in markets or as much hand-wringing inside the central bank. The decision to start winding down the Fed’s bond-buying program two years ago came close. The economy hit a few bumps along the way, but the Fed managed to pull off a relatively smooth exit from quantitative easing. The lengthy process helped everyone get the fear out of their systems. This time Fed officials certainly hope to be so lucky.


    • 12:06 pm
    • by Sudeep Reddy

    PROGRAMMING NOTES:  Thanks for joining us for another Fed funfest here on Real Time Economics. We’ve got an incredible team lined up to help you follow the Fed decision and analyze what it means for the global economy and markets. 

    The Fed releases its statement and latest economic projections at 2 p.m. EDT.  The press conference from Chairwoman Janet Yellen begins at 2:30 p.m.


    • 12:13 pm
    • by Sudeep Reddy

    WHAT TO WATCH: Your central bank will offer plenty to chew on today, and we’ve got plenty to whet your appetite. What are the key issues to watch?  Ben Leubsdorf laid them out:

    • The rate decision: now or later?
    • What happens later this year
    • Guidance about the path of tightening
    • The Fed’s longer-run outlook
    • Dissension in the ranks?

    Read more about each of those: 5 Things to Watch from the Fed Meeting


    • 12:15 pm
    • by Sudeep Reddy

    NUMBER NINETEEN:  Today will mark Janet Yellen’s seventh press conference as chairwoman at the Fed. It will be the 19th press conference since the Fed started the practice in 2011.

    We’ve followed all 18 of them here on Real Time Economics. If you want to reminisce about a particular round of QE, take a tour through our archives back:

    The last 18:

    June 2015

    March 2015

    December 2014 

    September 2014

    June 2014

    March 2014

    December 2013

    September 2013

    June 2013

    March 2013

    December 2012

    September 2012

    June 2012

    April 2012

    January 2012

    November 2011

    June 2011

    April 2011


    • 12:15 pm
    • by Josh Zumbrun

    INDECISION: Today’s meeting is remarkable not only because it could be the first interest rate increase in nine years, but because even some of the closest Fed watchers are uncertain about whether or not the Fed moves.

    The WSJ’s Survey of Economists shows that 46% think the Fed raises rates today; 54% say they wait. That’s almost a coin flip.

    This level of uncertainty is unusual, but not unprecedented, ahead of a major Fed decision. By the time the Fed launched QE2 or QE3 both programs were widely expected. But it’s worth remembering that there was quite a bit of uncertainty in September 2013 regarding whether or not the Fed would begin tapering its asset purchases.

    To briefly recap that episode: after a year of purchases, many Fed officials were clearly eager to begin winding down QE3 by tapering the pace of purchases. But when the Fed first mentioned they might end purchases, interest rates shot higher (this was dubbed the “taper tantrum”) and the economy ended up sputtering a bit as September rolled around.A little over half of economists still expected them to taper in September.

    The Fed, however, refrained from tapering. Ultimately they waited three more months and pulled the trigger in December.


    • 12:20 pm
    • by Paul Vigna

    ALL QUIET ON THE CAPITAL MARKETS FRONT: After several days of sharp rallies, U.S. equities are virtually at a standstill here, waiting for 2 p.m. The S&P 500 is up about two points at 1998, the Dow Jones Industrial Average is up 13 points at 16753, and the Nasdaq Composite is up 14 points at 4904.

    WTI crude was earlier up modestly, but has fallen into the red, down 0.9% at $46.65. Gold is down a fraction, 0.2%, at $1,116.70.

    The yield on the benchmark 10-year U.S. Treasury note is basically unchanged today, at 2.29%.

    It will of course be interesting to see what happens in the market, but there’s an added twist: at 1997, the S&P 500 is just over a point, about 1993, that has been rife with technical resistance. The index got that high on Aug. 28, and again in early September, and both rallies were swiftly turned back.


    • 12:22 pm
    • by Josh Zumbrun

    “LESS COMPELLING?” As recommended reading before today’s decision, New York Fed President William Dudley and Fed Vice Chairman Stanley Fischer have publicly aired some of their views in recent weeks over whether the case to raise interest rates is compelling.

    The contrast in wording here suggests that the two men—who are Janet Yellen’s top deputies—aren’t in total lockstep. Ms. Yellen has been silent on the matter, so it’s not entirely clear which of the top lieutenants’ views are closest to her own.


    • 12:29 pm
    • by Josh Zumbrun

    YELLEN BINGO! If you’re not too busy managing an investment portfolio, we stronglyencourage everyone watching the press conference to get their Yellen Bingo cards ready and  to vote for your favorite Fed theme song. If you’re a professional fund manager, it’s acceptable to monitor your portfolio first and your Bingo card second, but be advised this will make it harder to win.


    • 12:30 pm
    • by Ben Leubsdorf

    BEFORE THE SILENCE: Janet Yellen will break a two-month silence at her press conference. (That’s an unusually long stretch without any public words from the Fed chief, though other top officials have spoken recently.) A lot has changed in the world since her last public remarks, but they still offer insight into her thinking about what the Fed’s first rate increase would mean.

    In mid-July, she told lawmakers that a decision to raise rates “will signal how much progress the economy has made in healing from the trauma of the financial crisis” but added that “the importance of the initial step to raise the federal funds rate target should not be overemphasized.” Speaking July 10 in Cleveland, she said the initial rate increase, “whenever it occurs, will by itself have only a very small effect on the overall level of monetary accommodation provided by the Federal Reserve.”


    • 12:40 pm
    • by Josh Zumbrun

    FAILURE TO LAUNCH: Here’s one reason Fed officials may be nervous about raising rates. During recent years of global economic weakness, major central banks have repeatedly tried to raise rates only to ultimately reverse course, as summarized in this great graphic:

    For more on why these failures to launch might be spooking the Fed, check out this story, for some great global context:

    “Central banks in the eurozone, Sweden, Israel, Canada, South Korea, Australia, Chile and beyond have tried to raise rates in recent years, only to reduce them again as their economies stumbled.”


    • 12:40 pm
    • by Katy Burne

    TRADER INVOKES YELLEN HOROSCOPE IN FED’S CALCULUS: With scant guidance coming from Fed chief Janet Yellen’s lips about today’s momentous decision on interest rates, traders are scratching around for any new tidbits of information that can give them a steer hours ahead of the Fed statement. David Lutz of Jones Trading went as far as to send an email to clients showing Ms. Yellen’s horoscope. That’s now making the rounds among bond investors this morning.

    The Leo horoscope says, “Information and new ideas may be flying around, and you may be called upon to make sense of it all.” It continued, “Don’t be afraid to err on the side of the fanciful. This may be exactly the answer needed.”


    • 12:48 pm
    • by Jeffrey Sparshott



    The “Fed Up” coalition, joined by Democrat Rep. John Conyers of Michigan, held a press conference Thursday to ask that the Fed not raise rates.


    • 12:53 pm
    • by Josh Zumbrun

    REVISING DOWNWARD: A little-watched report from the Labor Department this morning showed that, as of March, U.S. employment was probably about 208,000 jobs lower than initially estimated.

    These were merely preliminary revisions but, if correct, that works out to about 17,000 fewer jobs per month over the course of a year. Because the revisions are preliminary and small, it’s unlikely to be a deciding factor at today’s meeting. If you were hoping the report might give you an extra boost of confidence, it didn’t.

    But offsetting this slightly dour news, a separate Labor Department report showed 264,000 people filed initial jobless claims last week. That’s near historically low levels implying health in the labor market. As our story noted: “Claims have been below 300,000 for more than six months, the longest such streak in more than 40 years.”


    • 12:59 pm
    • by Sudeep Reddy

    HOW YELLEN ROLLS:  Janet Yellen is a planner. She is methodical and careful, not the kind of policy maker to make it all up on the fly. That should give you a hint about what to expect today from a leader who has not spoken publicly in two months and who has not prepared markets for an imminent rate increase.

    As Jon Hilsenrath wrote today on WSJ Pro Central Banking, the Journal’s latest offering on all things about the global central banking world:

  • One of the more salient facts about Janet Yellen, the person, which you won’t find in any economics textbooks, is that the Fed’s leader likes to get to the airport three hours before her plane takes off. She doesn’t want to run to her gate, risk missing her plane because of traffic or find herself with no space left in the overhead compartment. In short she doesn’t like avoidable surprises.

  • Got that? Those of you still betting on a rate increase are betting on a change in Janet Yellen’s style. 


    • 1:15 pm
    • by Paul Vigna



    Trader Gregory Rowe, left, and specialist Mario Picone work on the floor of the New York Stock Exchange on Thursday.

    MARKETS ON KNIFE’S EDGE: Following up on that reference to important technical levels on the S&P 500 now that the index has just kissed the 2000 level. Here are some thoughts from Instinet executive director Frank Cappelleri:

  • The SPX got close to 2000 a few minutes ago [eds: it currently at 2000], a level that has obvious round number significance. It’s also the 50% retracement of the May–August decline. And, of course, the breakout from the ascending triangle pattern remains in play for now. Should the market deem the news at 2:00 as “good,” the air pocket up to 2040 will be on a lot of radar screens. An ill received decision would bring the just exited 125 trading range back in play.

  • These moves are coming amid increasingly light volume, meaning it take less muscle to move the market. But that’s just because most people are saving their proverbial powder for the after-2 p.m. scramble. Meanwhile, the index is right at this fulcrum point. If it deems the decision “dovish,” the index could rocket all the way up to 2040 pretty quickly, which is where it sat before the summer correction.

    If it deems the decision “hawkish,” then the nadir of the August selloff–which was 1866–is back in play.


    • 1:20 pm
    • by Jeffrey Sparshott

    ‘KEEP RATES LOW, LET OUR WAGES GROW’: Outside the K Street office where Janet Yellen will hold today’s press conference, the “Fed Up” coalition gathered to protest a possible rate increase. Amid chants of “Keep rates low, let our wages grow,” Rep. John Conyers (D., Mich.) joined the group to highlight legislation that would define maximum employment as a 4% unemployment rate. (The term, part of the Fed’s dual employment-inflation mandate, isn’t so specifically defined by existing law.)  It’s unlikely to get far in a Republican-controlled House.


    • 1:25 pm
    • by Becky Bowers

    HOW THE FED COULD AFFECT YOUR RATES: If the Federal Reserve hikes its target rate, what will the move mean for consumers’ savings and borrowing rates? WSJ’s James Sterngold explains based on data from past Fed actions. Photo: Getty



    • 1:32 pm
    • by Sudeep Reddy

    WHAT WOULD LARRY DO?  Once upon a time (two years ago), Washington was fixated on whether someone much closer to the White House would become the new Fed chief. Lawrence Summers was seen by many investors as less likely than Janet Yellen to carry on with extraordinary supportive monetary policy. When he withdrew from consideration,markets reacted with a bit of excitement.

    So it’s been particularly interesting to watch Summers vocally advocate in recent weeks for the Fed to stay put. Summers, in an interview, says “monetary policy should not be tightened until we’ve seen the whites of the eyes of inflation.”

    We’ll find out shortly whether Yellen agrees with his assessment. A bit here from our Q&A:

  • WSJ: The unemployment rate is down to 5.1%. Are you at all concerned that we are getting near full employment and the economy might be getting close to heating up?

  • SUMMERS: It wouldn’t have surprised me if we had seen evidence of rising inflation by this point, and it won’t surprise me if we see evidence of rising inflation soon. On the other hand, I think it is a grave mistake to treat the Phillips curve as some kind of immutable constant, like Planck’s constant in physics. Unemployment in Nebraska is below 3% and there is no obvious accelerating inflation. Unemployment among college graduates is 2.5% and there is no obvious accelerating wage growth. Inflation stayed very well under control at the end of the 1990s even with an unemployment rate well below 5%. Many things have happened to bring deflationary pressure to our economy, so I don’t think we can be confident at all that previous estimates of the natural rate of unemployment were accurate. The econometric studies find that the estimates of the natural rate of unemployment have a confidence interval three or four percentage points wide. It is much better to look at the inflation data.

  • More here: Lawrence Summers and Why It’s Too Early to Raise Rates


    • 1:37 pm
    • by Ian Talley

    MEANWHILE, ON CAPITOL HILL: Investors and finance officials around the world are waiting eagerly for the Fed decision and press conference. One important contingent of U.S. lawmakers won’t be tuning in.

    At 2 p.m., just as the Fed announces its decision, the House Financial Services subcommittee on monetary policy and international trade will host Nathan Sheets, the U.S. Treasury undersecretary for international affairs, for a hearing on the global economy.

    While fielding a barrage of questions from lawmakers, Mr. Sheets will likely be tempted to sneak looks at his Blackberry to check how his old employer is reshaping the state of global affairs. Treasury’s top financial diplomat spent almost two decades at the Fed, including as the head of the central bank’s international division.


    • 1:43 pm
    • by Jeffrey Sparshott

    DISSENT IN THE RANKS? If Janet Yellen gets a 10-0 vote on today’s statement, that would mark the sixth straight meeting with a fully united FOMC. That would be the longest unanimous streak since 2009, when the committee made it through seven meetings without a ‘no’ vote. Ben Leubsdorf outlines who could break ranks.



    • 1:45 pm
    • by Josh Zumbrun

    PROTIPS FOR READING THE FED STATEMENT: If you’re diving into the Fed statement live at 2 o’clock, remember that the main piece of action is the first sentence of the third paragraph, that currently says the Fed “reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate.”

    If the Fed raises the rate, they’ll have to change this sentence. Even if they don’t raise the rate, the Fed could use this sentence of the rest of the paragraph to signal whether they’re getting close.

    Other signs that the Fed is getting close: more confident language that labor market slack is diminishing in the first paragraph (the previous statement said “underutilization of labor resources has diminished since early this year”) or language that’s less worried about inflation in the second paragraph (currently the statement says it “expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of earlier declines in energy and import prices dissipate.”)

    The fourth paragraph is where the Fed currently signals that it’s going to keep the size of its balance sheet unchanged. Currently the focus is all on rates, not the size of the balance sheet, but some day the Fed will change this paragraph when it’s ready to start shrinking its total holdings of assets. Policy makers have signaled they won’t shrink the balance sheet until some time after raising rates, though, so action here today is unlikely.

    The fifth paragraph could be interesting if the Fed raises rates. This paragraph currently provides a bit of guidance about how, even after the first increase, rates are likely to remain low. If they actually raise rates, investors will be clamoring for more guidance about how and when future rises might occur. (If the Fed raises rates today is the best guess that they’ll raise again in December? Not totally clear at this point.)

    The last paragraph of the Fed statement keeps track of who dissents. This can be fun to watch, but remember the FOMC typically operates with ironclad majorities, and rarely needs to worry about one or two dissenters.


    • 1:50 pm
    • by Sudeep Reddy

    HOW TO MAKE MONETARY POLICY, SPAGHETTI EDITION:  The Fed faces an unusual situation today. The nation’s unemployment rate, at 5.1%, is pretty close to what policy makers have long considered full employment. But inflation has been below the central bank’s 2% target for more than three years. 

    What’s a central banker to do? They might have to set aside the Phillips Curve for a while.  Here’s the curve, which shows the relationship between unemployment  and inflation, and looks like some sophisticated spaghetti:


    Where does that leave central bankers?  With this

  • They can assume inflation will ramp up, and raise interest rates at the risk of smothering modest economic growth, or they could wait for evidence of an inflation uptick and risk seeing prices rise too fast.

  • Their trust in the late economist A.W. Phillips, whose work on the relationship between the job market and wages remains popular but controversial four decades after his death, might matter as much as hard data on consumer prices and worker pay.

  • “We haven’t lost faith in the framework” described by Mr. Phillips and his successors, that a tight labor market generates higher inflation, said David Altig, research director at the Atlanta Fed. But “the numbers that you would plug into that framework and the exact levels at which the pressures begin to emerge, we’re not so clear on those.”

  • Here’s everything a normal person could want to know about the Phillips Curve.


    • 1:59 pm
    • by Sudeep Reddy

    IT’S TIME: Brace yourself.

    • 2:00 pm
    • by Sudeep Reddy

    THE DECISION:  The Fed stays on hold. 

    In the end, it’s the obvious factors: “recent global economic and financial developments,” the Fed says.

    The statement offers no new guidance on the timing of the first rate increase. So the waiting game continues. 

    It’s a 9-1 decision, with (no surprise) Richmond Fed President Jeffrey Lacker dissenting.

    Here’s our team’s full story: Fed Leaves Interest Rates Unchanged



    • 2:04 pm
    • by Josh Zumbrun

    FEAR OF “FINANCIAL DEVELOPMENTS”: One new sentence in the statement may contain the nub of why the Fed refrained from rate increases: “Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.”

    In other words, the economic weakness particularly in China that helped contribute to that 1,000 point early morning drop in the Dow Jones Industrial Average a few weeks ago, seriously unnerved the Fed. “Financial developments” like that can hurt growth and could lead to lower inflation — that’s enough for the Fed to want to wait.


    • 2:09 pm
    • by Josh Zumbrun

    STILL APPETITE FOR RATE HIKE THIS YEAR: The Fed didn’t raise rates today, but most Fed officials still want to raise interest rates by the end of the year. Their interest rate projections show that 13 of 17 policy makers see higher rates at the end of the year. Three officials want to wait until next year. One official actually wants to cut rates and make them negative. It looks like the Fed skipped the rate increase today only to immediately put it back on the table.


    • 2:12 pm
    • by Jeffrey Sparshott

    BREAKING RANKS: Richmond Fed President Jeffrey Lacker’s dissent breaks a stretch of five straight unanimous votes for the FOMC, reaching back to January. While a first for 2015, opposition isn’t new to Mr. Lacker. He cast all four of the FOMC’s dissenting votes in 2006 and all eight dissenting votes in 2012, according to research by the St. Louis Fed.


    • 2:12 pm
    • by WSJ Staff

    STOCKS EDGE A BIT LOWER: Stocks slipped in the wake of the Fed’s decision to leave rates unchanged. Dow slipped 29 points, or 0.17%, to 16713; the S&P 500 is off 0.61 points to 1994; and the Nasdaq is up 6.62 points to 4895. Prior to the statement’s release, the Dow was up 24 points, or 0.1%, to 16764. The S&P 500 was up five points at 2001, while the Nasdaq Composite had gained 0.4% to 4909.


    • 2:14 pm
    • by Nicole Friedman

    OIL RISES, THEN FALLS: Oil briefly turned positive as the dollar falls after the Fed announcement but crude quickly retreated. A weaker greenback should theoretically boost prices by making the dollar-traded commodity cheaper for foreign buyers. “Its knee-jerk reaction will be to the dollar,” says Bob Yawger of Mizuho Securities. But the oil market is focused on its own fundamentals, including record inventories in the US and weakening demand from refineries. Nymex October is down 0.6% at $46.84/barrel and Brent is off 1.2% at $49.05.

    • 2:16 pm
    • by Josh Zumbrun

    HOW LITTLE CHANGED: For such a major statement, there was actually very little that changed, which you can see by checking out the Wall Street Journal’s Fed statement tracker.

    The Fed’s domestic economic outlook is little changed. It’s future policy guidance is completely unchanged. The big difference in the statement is the concern about global growth and financial markets. 

    • 2:16 pm
    • by Cynthia Lin

    TREASURYS EXTEND GAINS: Bonds rallied into the announcement and stay there after the FOMC says it’s holding rates near zero and offers little new insight on when it might lift off. Ten-year notes up 17/32 to yield 2.24%. But the overall steadiness in the market may reflect the fact that many had pared expectations for a rate hike in the past few weeks. The unchanged policy means the debate over when the Fed will tighten remains open, which means more volatility in the months ahead. 

    • 2:16 pm
    • by Sudeep Reddy

    PARSING THE FED:  The Journal’s nifty Fed Statement Tracker shows where all the attention went in September vs. July. How many ways can the Federal Open Market Committee say it’s worried about the global economy?



    • 2:17 pm
    • by Michael S. Derby

    WHO WANTS TO GO NEGATIVE? While it’s unlikely to affect the outlook much, it’s pretty notable that one Fed official now wants the Fed to push its near-zero target rate into negative territory.

    While the Fed documents don’t name names, it’s likely that outgoing Minneapolis Fed President Narayana Kocherlakota would like to take things negative. He has said repeatedly it would be a big mistake to boost rates with inflation so low. While negative rates could be highly disruptive to financial market infrastructure, a negative rate could make policy more powerful by forcing money into the economy and heating up growth. The question is, will any other Fed officials get on board with this provocative position? Or, if more stimulus is needed, will talk of a new round of QE come back into vogue?


    • 2:21 pm
    • by Min Zeng

    CHEERS CONTINUE FROM BOND MARKET: Short-term Treasurys lead a broad rally as the Fed’s decision attracts buyers. “The Fed shows no sign that they are in a hurry to raise rates and they may hold until 2016 to tighten,” says Deutsche Bank’s Gary Pollack. “The bond market is in a relief rally. The recent selloff made bonds attractive for buyers with the Fed on hold especially short-term maturities.”


    • 2:22 pm
    • by Cynthia Lin

    DOLLAR  SLUMPS: Once again, dollar bulls will have to wait. The greenback pulls back after the Fed says it’s still leaving rates near zero and generally lowers its view on how high the policy rate will rise in the coming years. That doesn’t bode well for dollar bulls, who have been waiting all year for the Fed to tighten. But one saving grace, analysts note, is how other major central banks are still actively easing. So while there might not be a lot of dollar-rising momentum, weakness in the euro or yen could still buoy the greenback. The dollar is now down 0.2% at Y120.3 while the euro jumps 1% to $1.1408.


    • 2:25 pm
    • by Jon Hilsenrath

    NEW DIGS: The background at Janet Yellen’s press conference might look a little different today because the Fed has switched the press lockup and press conference to a new building, in part to tighten security around the process.

    Yellen will still be behind a large wooden desk with blue drapery behind her, but she and the press questioning her are in a new place. The old place was at the Fed’s Martin Building adjacent to its cafeteria. The new place is on K Street a few blocks away.


    • 2:30 pm
    • by Josh Zumbrun

    Here’s Janet!



    Federal Reserve Chairwoman Janet Yellen on Thursday.


    • 2:30 pm
    • by Tatyana Shumsky

    GOLD RALLIES: Gold jumped to $1,131.20/troy ounce following the Fed’s statement, which delays the shift to tighter monetary policy until at least October or December. Traders welcome the development as the precious metal is expected to suffer once interest rates rise as it doesn’t pay interest and costs money to hold. Comex December is up 0.8% at $1,127.90.


    • 2:33 pm
    • by Josh Zumbrun

    WHEN TO RAISE? Ms. Yellen is mostly just recapping the official statement in her opening remarks, but she did issue this tidbit for when the FOMC will raise rates:

    “When it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.”

    The global economic weakness right now seems to be the key to what’s damaging their confidence that inflation will move back toward 2%.


    • 2:36 pm
    • by Josh Zumbrun

    DON’T MAKE TOO MUCH OF THE FIRST RATE INCREASE: The Fed really wishes that people weren’t making so much of the first interest rate increase. Ms. Yellen tried to remind her audience that “the stance of monetary policy will likely remain highly accommodative for quite some time after the initial increase in the federal funds rate.”

    After all, even if the Fed’s target rate was lifted to 0.5% or 0.75%, then it would still be lower than any point in previous decades. Prior to 2008, the lowest rates had gone in recent memory occurred in 2003-04 when rates were at 1%. The Fed will still have rates lower than that 2003 low point for some time.


    • 2:43 pm
    • by Josh Zumbrun

    THE OUTLOOK: Ms. Yellen confirmed that global economic uncertainty was a key factor prompting the Fed not to raise interest rates today, even though the Federal Open Market Committee considered it.

    “I don’t want to overplay the implications of these recent developments,” she added, saying they “have not fundamentally altered” the Fed’s outlook for the economy. But clearly they altered the Fed’s outlook enough not to move today, after communication from the central bank spent much of the year building toward today’s meeting.

    • 2:47 pm
    • by Sudeep Reddy

    SO YOU’RE SAYING THERE’S A CHANCE?  The first question: Could it be “many months” before the Fed has the certainty to raise rates?

    Most Fed officials still expect a first rate increase this year, Yellen says, noting that 13 out of the 17 are looking for a move in 2015. “Of course there will always be uncertainty. We can’t expect that uncertainty to be fully resolved.”  But they want more time to evaluate the impact on the U.S., she says.

    Yellen says “further improvements in the labor market” would bolster confidence about inflation backing back to the Fed’s target in the medium term.


    • 2:51 pm
    • by Jeffrey Sparshott

    OCTOBER RATE INCREASE?: Ms. Yellen again says “every meeting is a live meeting,” meaning that October is a possibility for a rate increase even though no press briefing is currently scheduled. Were the Fed to decide to raise short-term rates at that point, it would call a press briefing, she notes. 


    • 2:52 pm
    • by Christian Berthelsen

    MUTED MARKET REACTION REFLECTS DIM FED OUTLOOK: The muted reaction in risk markets to the Fed’s no-action on interest rates seems obvious on its face—the Fed didn’t do anything, so there’s nothing to react to. But there’s a little more to it than that. For one thing, this was the outcome that the market had come to expect, so keeping rates steady was already priced in to stocks and commodities. But traders also have their eye on the dovish remarks from the Fed in justifying its decision—“Global Developments May Restrain US Economy, Inflation” and “Compensation Measures Moved Lower —which suggest a somewhat dour outlook for the near future. If that’s the case, the markets may have more to worry about in the real economy than a 25-bps rate hike.


    • 2:54 pm
    • by Josh Zumbrun

    WHEN TO RAISE RATES: Ms. Yellen just emphasized a little-appreciated point about the Fed’s progress toward its goals. The central bank is not waiting until its goals are achieved and then raising rates. The Fed has to raise rates before the goals are complete, she said.

    “We don’t want to wait until we’ve fully met both of our objectives to begin the process of tightening policy, given the lags in the operation of monetary policy,” Ms. Yellen said.

    Ms. Yellen gave this answer in response to a question about whether the Fed was swayed by protesters who had urged them not to raise interest rates with the economy not fully healed. The Fed didn’t raise rates today, and agrees the economy isn’t fully healed — but they’re still resolved to start moving before the labor market is all the way back to normal.


    • 2:57 pm
    • by Sudeep Reddy

    INFLATION DIRECTION: Is the Fed closer or further away from the Fed’s inflation goal?  Yellen says the Fed has kept its language the same about its inflation outlook in the medium term.  The downward pressure on inflation (due to the dollar and import prices) continues to be viewed as “transitory,” she says.

    “This should be a small thing and in the meantime the labor market has continued to improve,” Yellen says. “A labor market moving toward full employment is one that historically has generated upward pressure on inflation.”


    • 2:59 pm
    • by Sudeep Reddy

    LEAK UPDATE: Asked about a pending congressional subpoena tied to an investigation of an alleged leak from the Fed, Yellen keeps it simple: 

    “We are working very closely with House Financial Services Committee … to satisfy their request,” she says. “We’re working very closely with them.”


    • 3:04 pm
    • by Jeffrey Sparshott

    OVERSHOOT: Ms. Yellen notes Fed officials are forecasting an unemployment rate below its natural rate (or non-accelerating inflation rate of unemployment), which should boost a low labor-force participation rate and help people who want full-time jobs but are stuck in part-time positions. And the big payoff: The “overshooting” helps move inflation back toward its 2% target faster than otherwise.


    • 3:05 pm
    • by Josh Zumbrun

    2% INFLATION IS “NOT A CEILING:” One of the primary criticisms of current Fed policy is that they’re behaving as if 2% inflation is a ceiling and not a target. Ms. Yellen dismissed this criticism. 

    The reason the Fed is raising rates before inflation hits 2%, she said, is that if they waited they would “likely overshoot substantially our 2% objective and might be faced with having to tighten policy in a way that would be disruptive to the real economy.”

    Pushing inflation to 2% and trying to hold it there is, in her view, a big difference from treating 2% like a ceiling.


    • 3:07 pm
    • by Sudeep Reddy

    UNCERTAINTY ABOUT UNCERTAINTY:  It’s a good question. What kind of uncertainty keeps you from lifting rates and what can you overlook?

    Yellen reveals a bit of uncertainty in her answer. “That’s a very hard question,” she says.

    In the end, Yellen says the Fed is focused on two things: the path for employment and the path for inflation.  

    “Of course there are many uncertainties in the global economy,” she says. “But we are asking ourselves how economic and financial developments in the global economy affect the risk to our outlook for our two goals, and whether or not they create unbalanced risks that we want to wait to resolve.”



    Federal Reserve Chairwoman Janet Yellen during the news conference.


    • 3:11 pm
    • by Jeffrey Sparshott

    CHINESE DEFTNESS: Ms. Yellen says the Fed has long expected slower growth in China as the country’s leaders rebalance their economy. The risk is that there’s a more abrupt slowdown than expected, possibly because the country’s leaders botch their response. “Developments that we saw in financial markets in August in part reflected concerns that there was downside risk to Chinese economic performance and perhaps concerns about the deftness with which policymakers were addressing those concerns,” Ms. Yellen said.


    • 3:12 pm
    • by Josh Zumbrun

    ARE WE JAPAN? Asked if the U.S. might possibly be stuck in a zero-interest rate world indefinitely, unable to raise interest rates without tanking the economy (like Japan), Ms. Yellen scoffed.

    “I can’t completely rule it out but really that’s an extreme downside risk that in no way is near the center of my outlook,” she said.


    • 3:14 pm

    GOING NEGATIVE: “Negative interest rates was not something we considered very seriously at all today,” Ms. Yellen says.

    That puts the kibosh on that for now.


    • 3:17 pm
    • by Sudeep Reddy

    DOES THE FED EVEN NEED TO HIKE?  Given the Fed’s forecasts, it seems the central bank could get by a few years without much inflation.

    Ms. Yellen acknowledges that lags in inflation “will be probably slow” but eventually the Fed could find itself with a “substantial overshoot” of its inflation target. Then the central bank would have to tighten policy “more abruptly than we like.”

    “I don’t think it’s good policy to then have to slam on the brakes and risk a downturn in the economy.”


    • 3:18 pm
    • by Josh Zumbrun

    THE YELLEN DOT: What everyone really wants to know is what Janet Yellen thinks. When Fed officials show that plot of interest rate forecasts, which dot is Ms. Yellen’s? But asked directly if she still thought it was likely to raise interest rates later this year (which would mean either the October or December meeting), Ms. Yellen declined to provide a direct answer.

    All she’d say is that she has “characterized the committee view as a forecast that, if it prevails, if that’s how the economy evolves, call for a funds rate increase later this year. I think that’s a fair summary of the committee’s assessment of things.”



    Janet Yellen on Thursday.



    • 3:21 pm
    • by Josh Zumbrun

    BINGO? Has anyone won the Fed bingo game yet? I’m completely stymied on my card by “yuan” and “Larry Summers” and “Puerto Rico.” Believe that none of these terms have come up yet.


    • 3:23 pm
    • by Sudeep Reddy

    ABOUT THAT DOLLAR:  Asked whether the Fed considers the strong dollar in its decision making, Ms. Yellen is focused on not saying enough that could move the dollar. Go figure. 

    “It’s not in my view the main channel by which monetary policy works. It’s one of a number of different channels by which monetary policy works. But it does have some impact on exchange rates and of course, yes, we need to take that into account.”


    • 3:23 pm
    • by Corrie Driebusch

    NO ACTION ON RATES ‘IS NOT A POSITIVE SIGN’: Not only was Doug Cote surprised by the Fed’s decision not to raise rates, he said it is a negative sign for markets.

    “Not raising rates when you’ve telegraphed it is not good news,” said Mr. Coté, chief market strategist at Voya Investment Management.

    Mr. Coté said he learned of the decision to keep rates near zero while at lunch in Detroit, where he had traveled to in order to meet with financial advisers and counsel them about the impending rate decision.

    “The market might be euphoric today but tomorrow is a new day,” he said, adding that there may be weakness in the stock market on Friday.

    Investors in stocks should as a result of today make sure they have broad global diversification across all sectors, adding that he is still a proponent of international and emerging markets, noting that right now they’re “cheap.”

    However, he maintains that investors should remain cautious. “No action on raising rates could be construed as a bearish signal.”


    • 3:25 pm
    • by Josh Zumbrun

    IS THE FED CAUSING INEQUALITY? The Fed gets this question a lot, and it’s doubtful they’d be as gung-ho with zero rates if they believed that was the main effect.

    Ms. Yellen’s response was quite blunt: “The main thing that an accommodative monetary policy does is put people back to work.”

    “Income inequality is surely exacerbated by high unemployment and a weak job market,” she said.


    • 3:25 pm
    • by Jeffrey Sparshott

    DEPRESSED. Ms. Yellen says the Fed expects further improvements in the housing market, though the industry will only play a supporting–not a starring–role in economic growth. For now, residential construction appears depressed, with starts “below levels that seem consistent with underlying demographics.”

    Ms. Yellen says the Fed is of course cognizant of the impact of rate increases on the housing market, but emphasizes that interest rates will rise only gradually (once that process starts). 

    The main driver of economic growth? Consumer spending.


    • 3:30 pm
    • by Sudeep Reddy

    HEY CONGRESS, GET TO WORK:   Ms. Yellen says the prospect of a federal government shutdown in a couple of weeks played absolutely no role in its interest-rate decision today.

    “I believe it’s the responsibility of Congress to pass a budget to fund the government and to deal with the debt ceiling so that America pays its bills,” she says. 

    The economy is making progress, Ms. Yellen says, “and to see Congress take actions that would endanger that progress, I think that would be more than unfortunate.”

    Two years ago, ahead of a government shutdown, Chairman Ben Bernanke seemed to take that account in deciding not to taper the bond-buying program just yet. (The taper came three months later.)  Ms. Yellen is not going there with this Congress.


    • 3:32 pm
    • by Jeffrey Sparshott

    BALANCED: The Fed still has about $4.5 trillion on its balance sheet, a figure that won’t much change until after the central bank starts normalizing interest rates. Ms. Yellen acknowledges a delay in raising rates also delays shrinking the balance sheet, but emphasized “if we defer this is not a very large matter that we are talking about from a stimulus point of view.” In any event, there’s no set time frame on balance sheet matters.


    • 3:34 pm
    • by Sudeep Reddy

    OVER AND OUT:  Ms. Yellen was in and out in under an hour.  She managed to give markets a jolt early, but the investor excitement fizzled out by the end of her appearance.



    • 3:38 pm
    • by Becky Bowers

    VIDEO: After looking at global economic stresses, Federal Reserve policy makers decided not to raise interest rates. WSJ Chief Economics Correspondent Jon Hilsenrath explains why they held off. Photo: AP



    • 4:18 pm
    • by Paul Vigna



    Traders work underneath a TV screen showing Federal Reserve Chairwoman Janet Yellen announcing that the Fed will leave interest rates unchanged on the floor of the New York Stock Exchange on Thursday.

    SELL THE NEWS: U.S. stocks finished in the red on Thursday, after the Fed did what traders had been betting for months that it would do, which was chose not to raise interest rates at its September meeting. The moves in the equities market had a bit of a “sell the news” tint to them.

    The Dow Jones Industrial Average fell 65 points (0.4%) to 16675, after trading up as many as 193 points in the afternoon. The S&P 500 closed down 5 points (0.3%) at 1990, after trading as high as 2021 in the aftermath of the FOMC statement. The Nasdaq Composite added 5 points (0.1%) and finished at 4894.

    Most sectors finished down on the day. Financials–which had been rallying this week–fell the hardest, down more than 1%. Two defensive sectors, utilities and health care, were the day’s two best bets, up 1.3% and 0.9%, respectively.

    At least traders can console themselves with this: Now that the central bank has pushed reaching its 2% inflation target out to 2018, it’s a lead-pipe cinch that rates are going to be low for several more years.


    • 4:45 pm
    • by Sudeep Reddy

    THE WAITING GAME CONTINUES:  A couple of years of debate and hand-wringing about the Fed’s first rate increase brought us…at least a couple of more months of debate and hang-wringing about the Fed’s first rate increase. 

    Janet Yellen, as you’ve seen here over seven press conferences, has become quite skilled at saying a lot of words yet not saying too much.  She’s learned a thing or two along the way about being cautious.  Keep that in mind during the coming stretch of hand-wringing. 

    Thanks for joining all of us here today. See you next time.

Source: Wall Street Journal