Yellen’s Six Months Fade as She Stresses Policy Flexibility

Six months may be history.

Federal Reserve Chair Janet Yellen, in her speech today, emphasized that the central bank is maintaining maximum flexibility on monetary policy and moving away from schedules for raising the benchmark interest rate.

“We need to be alert to what is happening in the economy and to respond to what we see happening, and not a fixed idea that we perhaps held at some earlier time about what will come to pass,” she said today in response to a question after a speech to the Economic Club of New York.

To economist Ward McCarthy, the comments represent another effort to walk back comments Yellen made in her debut press conference as Fed chair on March 19, when she said the central bank’s benchmark interest rate may rise about six months after it stops buying bonds.

“They’ve erased the blackboards from March 19 with a series of public comments from Fed officials, the minutes to that meeting, and of course all of that was repeated today when Janet Yellen said the change in forward guidance wasn’t intended to reflect a change in policy,” said McCarthy, chief financial economist at Jefferies LLC in New York.

At last month’s meeting, the Fed released forecasts showing officials expect the federal funds rate to rise faster than they previously predicted. Treasuries fell in response, and selling continued when Yellen made her “six months” comment.

The Fed, in minutes of the March 18-19 meeting released last week, played down the importance of the forecasts.

“Several participants noted that the increase in the median projection overstated the shift in the projections,” according to the minutes.

In today’s speech, Yellen repeated language from the Fed’s last statement that its decision to drop a pledge to keep the benchmark interest low at least as long as unemployment remained above 6.5 percent didn’t represent a change in policy.

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