Federal Reserve Will Wait At Least Six More Months Before Raising Rates

For those people counting down to the first rate hike from the Federal Reserve, New York Federal Reserve President William Dudley offered an interpretation of “extended period” for Susie Gharib of Nightly Business Report:

“GHARIB: Bill, everybody wants to know what do you mean by extended period? Would you please define that for us?

DUDLEY: I actually did take a formal poll, because I also wanted to answer the same question myself, because obviously we’re using this language, what does this language mean to people? And among my very informal set of people that I asked that question, they said that extended in their mind means at least six months.”

Dudley went on to emphasize that rates may not go up for another year or two – it all depends on the health of the economy. He confirmed that the Federal Reserve will wait until the employment picture improves before considering rate hikes:

“I certainly need to see an economy that’s vigorous enough to bring the unemployment rate down, number one. And two, I would care about what’s going on in inflation. We have a dual mandate, price stability, full employment. We’re doing very well on the inflation side. We’re doing not well at all on the employment side. So really we have an imbalance right now. So what I’d be really looking for is to watch job growth, unemployment rate coming down, and as long as inflation is well behaved, then I’m going to be pretty patient on the other side.”

Clearly, Dudley is assuming that inflation will remain tame as long as unemployment remains high. For example, he insisted “…when we look at financial asset prices today broadly, we don’t really see anything that looks bubbly to us.” So, it is not clear what the Fed might do if inflation starts to pick up ahead of improvements in employment.

Gharib covered a range of other topics with Dudley. You can review the transcript of the interview here or watch the video here.

Be careful out there!

Full disclosure: no positions