The Rate Rise Timeline to Watch for Now – When will the Fed begin to raise rates?
According to Rick Rieder, Fed Chair Yellen’s Jackson Hole comments, along with the recently released Fed minutes, clearly show we’re at the beginning of a very significant period of transition for Fed monetary policy.
As market watchers dissect Federal Reserve (Fed) Chairwoman Janet Yellen’s widely anticipated Jackson Hole Symposium comments, many are focusing on her statements regarding how the U.S. jobs market has not yet fully recovered.
These comments from Chair Yellen, along with the recently released minutes from the FOMC’s July meeting, show a Fed that is clearly angling toward more near-term policy normalization.
So, you’re probably wondering now: When will the Fed begin to raise rates?
If the August payroll report shows continued labor market improvement, watch for a policy transition announcement at the Fed’s September meeting. Assuming that the upcoming jobs report, due out September 5, confirms the recent improving employment trend, the Fed will have room to potentially lay out its transition game plan.
A September transition announcement could lead to rate normalization beginning as early as March. A presumed six-month period after the public dissemination of the transition plan would mean a March rate lift-off.
After lift-off, the Fed will likely normalize rates slowly until we reach a federal funds rate closer to 3%. The pace at which the Fed normalizes the rate will most likely be very deliberate, and much slower than any exit strategy (rate hiking cycle) in the past.
In short, we’re at the beginning of a sooner-than-expected, and very significant, period of transition for Fed monetary policy, and given today’s slow economic growth, the path toward normalizing rates is likely to involve a slower pace and a well-defined lower rate destination than past exits.
As for what this means for markets and the economy, news of a rate rise plan could disrupt markets in the near term.
Source: blackrockblog
