The Wall Street Journal reports, "Janet Yellen surprised investors in her first press conference at the helm of the Federal Reserve when she tried to specify when the central bank would begin raising interest rates. The Fed, in its policy statement, said the benchmark federal-funds rate will remain near zero for a “considerable time” after its signature bond-buying program ends".
But at the press conference when Ms. Yellen was asked to clarify that timing, she said it is “hard to define” but that it “probably means something on the order of around six months.”
That means the Fed could potentially raise rates sometime in the first half of 2015, assuming it keeps dialing back the bond-buying program at the current pace.
Such a timetable didn’t sit too well with investors.
The Dow Jones Industrial Average fell as many as 210 points before finishing the day down 114 points. Late Wednesday the benchmark 10-year Treasury yield rose to 2.770%, according to Tradeweb, up from 2.714% right before the Fed’s statement. The yield remained at that raised level this morning, while stock markets across Europe and Asia fell.
“It is hard to know if Yellen wanted the market (which has taken it hard on the chin following that particular remark) to start thinking of a mid-2015 hike, but that is what was implied by her statement,” said Millan Mulraine, director of U.S. research and strategy at TD Securities.
The Fed’s latest projections showed most officials—13 of 16—expect to start raising short-term rates in 2015. Just one official expected to begin lifting rates this year and two expected the Fed will wait until 2016. Those projections don’t deviate much from Ms. Yellen’s off-the-cuff remark at the press conference.
But as U.S. stock prices fell and Treasury bond yields rose, many market participants interpreted the projections and Ms. Yellen’s comments as possibly indicating that interest rates could rise sooner and higher than initially expected.
