Janet Yellen has outlined why rates may rise in the future
Federal Reserve chair Janet Yellen has outlined why rates may rise in the future, namely, when [the FOMC] has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term. The labour market criterion is clearly evidence based. The committee says it wants to see improvement before acting. Hitting the inflation target is more faith-based. It wants to be reasonably confident. The chart shows, for the Fed's preferred measure of inflation, its trajectory since 2000 (in blue) and the upper and lower bounds of FOMC members' forecasts (in red). The members believe the 2% target will not be reached until 2017 implying the Fed will not be absolutely confident for another two years. The question that will intrigue markets is when will the FOMC be confident enough bearing in mind that the unemployment rate resulting in rising inflation has been revised down again and aggressive monetary policies have not stoked price increases in the way so many had anticipated.
John Robertson is Chief Investment Strategist for PortfolioDirect a provider of resource sector investment stock ratings and portfolio strategies for mining and oil and gas investors. He has worked as a policy economist, corporate business...
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