Federal Reserve chair Janet Yellen last night signalled that the US central bank could begin raising short-term rates six months after it halts its bond purchases, around the end of this year.
That was the clearest indication to date of when the Fed might raise its benchmark short-term rate, which has been at a record low near zero since 2008.
The Fed has previously resisted specifying the timing of a possible increase in the short-term rate. Its latest statement says the rate could stay at a record low “for a considerable time” after the bond purchases end.
“This is the kind of term it’s hard to define,” said Yellen, speaking after chairing her first monthly Fed meeting. “[It] probably means something on the order of six months, or that type of thing.”
The Fed also dropped the US unemployment rate as its definitive yardstick for gauging the economy’s strength, and made clear it would rely on a wide range of measures in deciding when to raise interest rates.
Yellen said the US economy is “not close to full employment,” even as the unemployment rate has dropped a full percentage point over the past 12 months to 6.7 per cent.
Fed officials ended their two-day meeting having eliminated a previous commitment to consider raising short-term interest rates once the unemployment rate fell below 6.5 per cent.