WASHINGTON (12/17/14)--The intentions of the Federal Open Market Committee (FOMC) on when it plans to begin nudging up short-term interest rates may be revealed this afternoon when it releases its statement at the conclusion of its two-day policy meeting.
Should the words "considerable time" appear in that statement, it could signal that sluggish inflation has persuaded the Federal Reserve to push back its timeline on when it will begin raising short-term interest rates.
If the Fed leaves those words out, however, chances are the FOMC is giving a heads up to the market that it's gearing up to raise rates in the middle of next year, as many economists have predicted it would.
"It's reasonable to think about taking that language out now," Jim O'Sullivan, economist with High Frequency Economics, told USA TODAY (Dec. 16).
Policymakers are "likely to start trying to reshape market expectations gradually" rather than surprising investors with an abrupt increase in rates, added Drew Matus, economist for UBS (USA TODAY).
Market conditions, which will weigh heavily on the Fed's decision on when to raise rates, largely have proven favorable in recent months, as the economy grew by 3.9% in the third quarter, U.S. employers continue to add jobs at a healthy clip and the unemployment rate continues to taper.
But then there's that pesky inflation.
Bottomed-out oil prices and a weakening global economy have pinned down inflation in the United States below the Fed's annual 2% target, which could give the FOMC reason to hold off on any rate increases (USA TODAY).
O'Sullivan told USA TODAY, however, that because the Fed relies on "core" inflation, which leaves out food and energy costs, inflation could still rise to an acceptable level for the FOMC.
And if gas and energy prices continue to flounder, consumer spending may reap the benefits, which could boost economic growth and encourage the Fed to raise rates just the same.