Grand Central: How Yellen’s Methodical Style Informs the “Considerable Time” Debate – Real Time Economics

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As I see it, one of two headlines will come out of today’s policy meeting at the Federal Reserve. The Fed could drop its assurance that short-term interest rates will remain low for a “considerable time.” If it does that, the headline of tomorrow’s story will be that the Fed stayed the course, despite falling oil prices and market turbulence, and signaled it is moving gradually toward short-term interest rate increases around the middle of next year as the U.S. economy improves. If the Fed retains the assurance, the headline will be that the Fed was shaken by the disinflationary impact of falling oil prices, slow growth overseas and market turbulence, and signaled continued low rates.

Which of those two signals does the Fed want to send? Much of what senior officials said and did before the meeting suggested they would be inclined to signal the former. Fed Chairwoman Janet Yellen is a very methodical leader. She doesn’t like to lurch and has said so, as a matter of policy.

“The Federal Reserve will strive to clearly and transparently communicate its monetary policy strategy in order to minimize the likelihood of surprises that could disrupt financial markets, both at home and around the world,” she said in Paris in November. A surprise today would be keeping the low rate assurance after the months that Fed officials have spent signaling they could drop it.

The deep desire to be methodical and predictable is of course counterbalanced by the Fed’s repeated argument that its policies are data-dependent. Data are unpredictable. Headline inflation is falling. Some officials – including San Francisco Fed President John Williams and Atlanta Fed President Dennis Lockhart – are in no hurry to signal a move toward rate increases.

But the decision goes to the leader on close calls, and Ms. Yellen’s lieutenants –New York Fed President William Dudley and Fed Vice Chairman Stanley Fischer – have both described the drop in oil prices as a net positive for the U.S. economy. The bar still looks high for Ms. Yellen to veer from the path she has set.

Read below for more of our coverage on the meeting.

-By Jon Hilsenrath


WSJ’s Hilsenrath and Reddy Discuss the Fed Meeting. Later today, the world will be closely parsing the Fed’s policy statement, new economic projections and Chairwoman Janet Yellen’s press conference for signals about when the central bank is likely to start raising short-term rates from near zero. Wall Street Journal economics correspondents Jon Hilsenrath and Sudeep Reddy held a live video Spreecast chat Tuesday to discuss it all and Ms. Yellen’s performance in her first year as Fed chief. Here are excerpts of their conversations about turmoil in Russia, plunging oil prices and when the Fed might drop “considerable time” from its policy guidance, as well as a link to the full video.

More Fed Preview Coverage:
Hilsenrath Analysis: A ‘Strong Possibility’ Fed Will Drop ‘Considerable Time’
– Hilsenrath Analysis: Fed Unlikely to React Aggressively to Russia Turmoil
5 Things to Watch at the December Fed Meeting
Fedspeak Cheatsheet: What Are Fed Policy Makers Saying?
Fed Likely to Stare Down Oil-Price Drop 
Fed Aims to Signal Shift on Low Rates 

Oil Is Dragging Down Prices Faster Than Official Price Index Can Capture. Consumer prices around the world are pulling back so rapidly, along with the collapse of oil prices, that official measures of inflation have yet to capture the magnitude of the decline. But the Billion Prices Project, which scrapes the Internet daily to capture changing prices online, is recording a significant and broadening plunge in consumer prices.

Europe’s Deflation Struggle Intensifies.  Europe’s struggle to avoid a slide into deflation suffered a setback in November, as consumer prices across the European Union’s 28 members rose at the slowest annual pace in five years.

ECB Nouy: European Banks’ Exposure to Russia No Reason to Fear Disorder. European banks’ exposure to Russia is no reason to fear serious trouble owing to the weakened ruble even though markets are likely to be jittery for a few days or even weeks, the head of the eurozone’s new banking watchdog said Wednesday – Dow Jones Newswires.

Oil Price Fall to Boost U.K. Growth, Say BOE Officials.  A sharp fall in the oil price is likely to power economic growth in the U.K., Bank of England officials concluded earlier this month.

U.K. Regulators Hit Hurdles on Fixing Benchmarks. U.K. regulators are expected to report in coming weeks on plans to fix global financial benchmarks. But efforts so far under way are already running into difficulties.

European Pressphoto Agency

Ruble Volatile in Early Trading.  The ruble was volatile in morning trading Wednesday despite the Russian Finance Ministry saying the beleaguered currency was “extremely undervalued” as it announced plans to start selling its excess foreign-exchange holdings.

China Warms to a More Flexible Yuan. After years of allowing nearly uninterrupted gains in the yuan, China is growing more willing to let it depreciate modestly while seeking to add flexibility to its trading, according to Chinese officials and experts familiar with the country’s policy-making.

Brazil’s Tombini Says Swap Auctions Will Continue Into January. The Central Bank of Brazil will continue its program of auctioning currency-swap contracts at least into January, bank President Alexandre Tombini indicated Tuesday. The bank started daily auctions of the contracts in August 2013 to reassure Brazilian importers and other companies that they wouldn’t lose money if the real weakened abruptly against the dollar.

Thailand’s Central Bank Maintains Policy Rate at 2.0%. Thailand’s central bank kept its benchmark interest rate unchanged Wednesday for the sixth consecutive time despite slow economic growth. The Bank of Thailand’s Monetary Policy Committee voted 5 to 2 to leave the rate at 2.0% during its final meeting of 2014. The central bank last cut the rate by 0.25 percentage point in March – Dow Jones Newswires.

Czech Central Bank Leaves Monetary Policy Unchanged as Expected. The Czech Central Bank left its monetary policy unchanged and confirmed its koruna-euro floor amid ongoing efforts to boost consumer price growth and bolster export-led economic growth. The decision keeps the benchmark interest rate at an all-time low of 0.05%, marking the 25th month of borrowing costs at practically zero and 15 months of targeting the Czech currency at weaker levels – Dow Jones Newswires.

Hungarian Monetary Conditions May Remain Loose for Extended Period. Hungary’s monetary conditions may remain loose for an extended period to meet the inflation target, the central bank said Tuesday, after it left rates unchanged at a record low and slashed its inflation forecast for next year. It also warned that a deepening of geopolitical tensions could result in a fall in external demand and also in a sharp rise in risk premia associated with Hungary. –Dow Jones Newswires

Bank of Greece Sees Resumption of Economic Growth. Greece’s central bank Tuesday slightly raised its forecast for economic growth this year to 0.7% and forecast growth of 2.5% in 2015, but warned about the possible negative effects of the political turmoil gripping the country. –Dow Jones Newswires


A College Conundrum for the Gender Pay Gap. Women working full-time earned 82 cents, on average, for every dollar a man earned in 2013, the U.S. Labor Department said this month. The pay gap between college-educated workers last year was wider than the gap for high-school dropouts. Women working full time with at least a bachelor’s degree earn 25% less than comparable men, while the disparity for high-school dropouts was 20% and 22% for those with only high-school diplomas. That marks a reversal from 30 years ago, when the most-educated women had the narrowest gap with similar males.


-Federal Reserve releases a policy statement and updated economic projections at 2 p.m. EST

-Fed’s Yellen speaks at a press conference in Washington at 2:30 p.m. EST. Follow the action on our live blog!


U.S. Consumers’ Holdings and Use of $100 Bills. “Historically, perhaps the greatest concern about cash has been its association with criminal activity, which is often assumed to account for the vast majority of cash use. In this regard, the $100 bill — now the largest U.S. denomination — receives the most attention,” Claire Greene and Scott Schuh wrote in a paper from the Boston Fed. But a 2012 diary-based study found that “more than one in five U.S. consumers carries more than $100 in cash in his or her pocket, purse, or wallet, and the more cash the consumer carries the more likely he or she is to carry $100 bills.”


What Did the Greenspan Fed Do with Its “Considerable Time” Pledge in ’04? In January 2004, core inflation was lower than it is now, and unemployment was about the same. “And what did the Greenspan Fed do? It dropped its ‘considerable period’ pledge, saying instead that ‘the Committee believes that it can be patient in removing its policy accommodation,’” Benn Steil and Dinah Walker write on the Council on Foreign Relations’s Geo-Graphics blog. “If history is a guide, then, the Yellen Fed will drop its ‘considerable time’ pledge on Wednesday, paving the way for a possible rate hike in the middle of 2015.”

It’s too soon for the Fed to raise rates, says Josh Bivens in the Journal’s “Think Tank” blog. “The faster pace of job growth in 2014 relative to recent years is behind some calls for a more rapid return to higher rates. But even this welcome growth has still left us far from the labor market’s pre-Great Recession health. And until the U.S. labor market begins approaching pre-recession conditions, the argument for the Fed raising rates anytime soon is weak.”

Higher Capital Requirements Worked, writes Stephen Cecchetti, formerly chief economist at the Bank for International Settlements on Voxeu. “With four years of evidence behind us, my reading is that the optimists were not optimistic enough,” Mr. Cecchetti says of the increase in capital requirements following the onset of the 2008 financial crisis. “Since the crisis, capital requirements and capital levels have both gone up substantially,” he writes. “Yet, outside the still-fragile Eurozone, lending spreads have barely moved, bank interest margins have fallen, and loan volumes are up. To the extent that more demanding capital regulations had any macroeconomic impact at all, it would appear to have been offset by accommodative monetary policy.”

The Sad Reality of Russia’s Dramatic Midnight Central Bank Rate Hike. “Here is a sad reality if you are a Russian trying to cope with an economic recession and a currency implosion (and it is something that is having a broader impact on many investors in emerging markets, almost regardless of where they are investing and through which asset classes): There isn’t much your central bank can do to engineer a sustainable Russian economic and financial recovery,” Mohamed El-Erian writes for Business Insider. “Instead, it falls to President Putin.”


Two gauges of U.S. home-building fell in November, the latest sign of an uneven housing recovery. Housing starts fell 1.6% last month from October and permits fell 5.2%, according to the Commerce Department.

Japan’s exports grew 4.9% in value in November but fell 1.7% by volume, the latest indication that a weaker yen has failed to stoke exports and real economic activity.

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17 December 2014 | 12:26 pm – Source:


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