Fed Minutes Show Extended Debate on Rate Guidance

Federal Reserve Board Holds Open Meeting As Banks Get Two More Years to Meet Volcker CLO Standards
Andrew Harrer/Bloomberg via Getty ImagesFederal Reserve Chair Janet Yellen

WASHINGTON -- The Federal Reserve struggled last month over how to convey to investors the pace at which it will raise short-term interest rates once it increases them from record lows.

Two weeks before the Fed's regular meeting March 18-19, it held an unusual and previously unannounced videoconference to debate the issue, according to minutes of the meeting released Wednesday.

In the end, the Fed settled on an open-ended approach: That even after employment and inflation are nearly back to normal, short-term rates may need to stay unusually low for a while because the economy isn't fully healthy.

Stock and bond investors read the minutes to signal that the Fed plans to favor low short-term rates longer than many had assumed. Stocks rose sharply after the minutes were released, and bond yields fell. The Dow Jones industrial average, which had risen modestly before the minutes were released, was up 154 points 30 minutes later.

Investors have been intensely following the Fed's guidance on rates because higher short-term rates would elevate borrowing costs and could hurt stock prices.

The minutes covered the first Fed meeting at which Yellen presided as well as the March 4 videoconference. At both sessions, the issue of the language the Fed uses in its statements to signal the timing of future policy actions was a topic of extended debate.

The Fed has kept its key short-term rate at a record low near zero since December 2008. It made no change to that rate at the March meeting.
But it dropped language from its statement that had previously said this rate would likely remain low "well past" the time unemployment fell below 6.5 percent.

Instead, the Fed said it would review a "wide range of information" before starting to raise rates. It repeated language that it expected to keep rates low for a "considerable time" after it stops buying bonds.

Also at the March meeting, the Fed approved another cut in its monthly bond purchases of $10 billion to $55 billion a month. Those purchases are intended to keep long-term loans rates low to spur borrowing, spending and economic growth.

The monthly purchases had been held at a level of $85 billion a month all last year. The Fed announced an initial $10 billion cut in December and another in January.

Many economists think the Fed will keep reducing the bond purchases by $10 billion at each meeting this year before ending them altogether late this year.

Asked at a news conference after the Fed's meeting last month to define a "considerable time," Yellen said it "probably means something on the order of six months." Her remark jolted markets. It seemed to signal that the first rate hike could occur next spring, sooner than many investors had been expecting.

But in a speech March 31, Yellen made clear that she thought the job market was still far from healthy and would need the help of low rates "for some time" to come.

The minutes issued Wednesday seemed to confirm that short-term rates will likely remain low for a considerable time, even after the Fed has begun to raise rates.

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It's obvious the New Fed Chief is cautious about the labor reports. All you got to do is download the data going back to WWII regarding the Labor force to see how lousy this recovery is.

If they had rushed to raise interest rates the markets would of plunged.

April 10 2014 at 11:56 AM Report abuse rate up rate down Reply

The BLS does not ask about legal status. That should really help when figuring the Unemployement rate for US citizens right? :(

April 10 2014 at 3:46 AM Report abuse rate up rate down Reply

Right I'm sure if you do the Household survey in NJ the apartments and illegally rented homes over occupied with undocumented aliens and expired visa holders ect are going to all rush to answer the Household survey.

Drop the L from BLS an tell me what you get.

April 10 2014 at 3:18 AM Report abuse rate up rate down Reply

Breaking News:

Labor Report for March 2014 (Not In the Labor Force )

Page 4 and page 18 . Page 4 shows 91.030 million Not in labor force but page 18 shows a total of 91.630 when you add foreign born and native born Not in the labor force totals for age 16 and over.

Page 4 is seasonally adjusted versus page 18 not seasonally adjusted.
Depends how you pick and chose estimates to bend the numbers your way.

April 10 2014 at 3:08 AM Report abuse rate up rate down Reply

submit to an audit, please, ms. yellen

April 09 2014 at 7:17 PM Report abuse rate up rate down Reply

Extended debate ? This economy has been taking on water like the Titantic for the last 3 decades only the Fed Captains keep handing the wheel to somebody else.

On the History Channel former Generals and experts were talking about the economic and military power China gaining on the USA. Where did China get the money and jobs to boost this gain? Bingo.

April 09 2014 at 5:50 PM Report abuse rate up rate down Reply

My home page has the same financial subjects on it for over a week.

Mr Armstrong got a 46% loss. Need a topic there you go!

April 09 2014 at 5:35 PM Report abuse rate up rate down Reply

The economy destroyed so many people trying to recover from the damage done by the trade deals and other mishandling of the economy that it's more serious then they know or let on at the FED.

Millions are forced out of the labor force while a flood of people come in to displace them. All the while this economy struggles the stocks zoar but the rest of us are left out.

April 09 2014 at 5:27 PM Report abuse rate up rate down Reply

We need to audit the Fed.

April 09 2014 at 4:42 PM Report abuse +3 rate up rate down Reply
1 reply to jdykbpl45's comment

What goes around eventually comes around.

April 09 2014 at 5:30 PM Report abuse +1 rate up rate down Reply