NEW YORK (MarketWatch)
The FOMC decided to trim the bond purchases by another $10 billion this month and changed the way it targets unemployment and inflation in deciding short-term interest rates
Yellen fielded questions from the press following the widely expected Fed policy announcement in her first news conference as the Fed chairwoman, succeeding Ben Bernanke
Stocks, which were flat before the Fed statement, retreated afterwards
But the hard drop, which took the Dow down more than 200 points, came when a reporter asked Yellen how long the Fed would wait to start raising rates after it stops buying bonds in what’s known as quantitative easing
Yellen said the Fed’s language “probably means something on the order of around six months, that type of thing.”
The taper of the Fed’s bond purchases is expected to end in October or November, putting the potential first rate hike on course for April or May of 2015
Yields on 10-year Treasurys surged, gold prices fell further and the dollar spiked against the Japanese yen after the Fed announcement and Yellen comments
Traders in fed funds futures moved up their bets on rate hikes by two meetings, to April 2015
“It was a harsh reminder that QE wouldn’t be here forever and it would be done by the fall
Then when she noted that ‘considerable time’ for keeping the fed funds rate in the current range would be six months after QE ends, this opened the door to higher rates by April. July was the consensus for the first rate hike,” said Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research
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WASHINGTON (MarketWatch) -- Federal Reserve Chairwoman Janet Yellen's comment at a press conference that the first rate hike would begin six months after bond purchases concluded is not very different than prevailing expectations, St. Louis Fed President James Bullard said, The Wall Street Journal reported.
WASHINGTON (MarketWatch) -- Monetary policy should be less accommodative when estimates of risk premiums in the bond market are abnormally low, Federal Reserve Gov. Jeremy Stein said . He used the example of spring 2013, when the 10-year Treasury yield was around 1.6% and estimates of term premium were around negative 80 basis points. "Applied to this period, my approach would suggest a lesser willingness to use large-scale asset purchases to push yields down even further, as compared with a scenario in which term premiums were not so low," he said. As a Fed governor, Stein gets to a vote at every meeting, and he was one of the first at the central bank to flag concerns about financial stability
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