Federal Reserve officials are discussing the future of their vow to hold interest rates low for a "considerable time," ahead of a meeting next week where they will weigh that pledge against signs of economic strength.
Federal Reserve Bank of Atlanta President Dennis Lockhart, foreshadowing a debate for the Federal Open Market Committee (FOMC) on Dec. 16 to 17, said yesterday there were dangers in dropping the U.S. central bank's commitment, even after good news on job creation.
"I am not in a rush to drop the 'considerable time' phrase if it would in any way convey an imminent liftoff decision," he told reporters after a speech in Atlanta in which he highlighted the perils of raising rates too soon. "I am comfortable with continuing with that language."
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Fed Vice Chairman Stanley Fischer last week said that while minutes of the October FOMC gathering showed "we're closer to getting rid of that," officials wouldn't simply remove the commitment without replacing it with something else.
"You may assume we're not going to suddenly stop that and not say anything, just take it out and leave no guidance" on interest rates, he said at an event in Washington on Dec. 2.
The phrase, retained at the FOMC's October meeting when it ended a two-year bond buying campaign, has been an important tool for the Fed to provide additional economic stimulus after it has held rates near zero since December 2008.
Now, after data showed U.S. hiring surged in November, with the 321,000 advance in payrolls exceeding the most optimistic projection in a Bloomberg survey of economists, policy makers must decide how much longer to leave the language in place.
While Lockhart said the jobs numbers were very strong, he also drew attention to the inflation rate persisting below the Fed's 2 percent goal and said there are reasons to think the strong data still masks labor-market slack. Lockhart will be a voting member of the FOMC next year.
"There is plenty of reason to buy the delayed lift-off argument," Lindsey Piegza, chief economist at Sterne, Agee & Leach, Inc. in Chicago, wrote in a note yesterday.
The central bank's preferred gauge of price pressures rose by 1.4 percent in October versus the same month last year and hasn't been above 2 percent since March 2012.
Investors have brought forward bets on when the Fed will raise rates by several months, to around June, since the stronger-than-expected jobs data.
Lockhart said he saw rate liftoff in mid-2015 or later and cautioned that there were risks of tightening too soon, echoing remarks last week by New York Fed President William C. Dudley.
"It is still premature to begin to raise interest rates," Dudley said in a speech at Bernard M. Baruch College on Dec. 1. "When interest rates are at the zero lower bound, the risks of tightening a bit too early are likely to be considerably greater than the risks of tightening a bit too late."
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