Time is Running out for “Considerable Time”

The Federal Reserve began its two-day meeting today. The real news will come tomorrow afternoon when we find out what they decided. I think we can expect another taper decision. The next meeting, which is in late October, should be the final taper decision, and then QE will be done for.

The Fed will also update its projections and include forecasts for 2017. But what a lot of people are watching for is the inclusion of the Fed’s “considerable time” language. This has been the phrase the Fed has used to describe the time period between the end of QE and the first rate increase. This is from the July statement:

The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.

For now, it looks like the language will stay, but I’m curious how much longer it will last. I’m guessing they’re debating that right now. I like to look at the futures market, and the latest prices suggest that rates will rise next June. But remember, that’s just one increase. Assuming inflation stays at 2% (year-over-year is currently 1.99655%), that means that real short-term rates are expected to stay negative for another 2.5 years.

Slowly, things are getting back to normal. Very slowly.

Posted by on September 16th, 2014 at 1:15 pm


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