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The Federal Reserve Wouldn't Be Crazy To Delay A Rate Hike Into 2016

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by , 12-16-2015 at 10:57 AM (1162 Views)
      
   
Ben Bernanke waited for certainty before making changes to monetary policy. Under Bernanke, the Fed took far longer than expected to taper its third round of bond buying. Yellen and members of the FOMC, although they would surely send markets scrambling, might not be entirely crazy to ask for more time before raising rates.

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Two justifications for raising rates are steady jobs gains over the course of 2015, which have brought the unemployment rate to 5%, its lowest level since the financial crisis. The Fed also believes deflationary pressures from falling oil prices and foreign denominated imports are likely to abate in 2016, meaning the central bank is increasingly confident in its forecast of a return of inflation at its 2% target.

Furthermore, Yellen said in congressional testimony there is a risk of delaying too long, thus causing a rapid tightening cycle that could have a significant market or economic impact. Yellen, of course, hedged this hawkish outlook, giving the Fed some flexibility even as it tried to telegraph a hike.

“Between today and the next FOMC meeting, we will receive additional data that bear on the economic outlook. These data include a range of indicators regarding the labor market, inflation, and economic activity. When my colleagues and I meet, we will assess all of the available data and their implications for the economic outlook in making our policy decision,” Yellen said.

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