Janet Yellen, the new chairman of the Federal Reserve, held her first press conference today following the meeting of the FOMC or Federal Open Market Committee. When asked a question about how long she plans to keep the Fed Funds rate at 0%-.25%, she said at least for six months after quantitative easing ends. This seemed
to be a big surprise for the equity market, and stocks promptly fell 200 points. I think the market was looking for a longer time frame, or none at all. While stocks recovered about 100 points of that drop before the market closed, there continued to be a lot of chatter about this shortened timeline for raising the Fed Funds rate. We do not view the Fed’s posture as vastly different from what it has been the past few years, and it has been quite dovish for rates. The Federal Reserve will continue to monitor the unemployment rate, inflation, and the global economy to make its rate decisions. All of that having been said, rates will eventually rise. The big question will be can the Fed engineer a “soft landing”, by raising rates slowly as the economy improves, but not so much as to squelch it.
