JACKSON HOLE, Wyo. (8/25/14)--With the end of the Federal Reserve's economy-stimulating bond-purchase program in sight, the decision by the Federal Open Market Committee (FOMC) on when to raise interest rates is now squarely in the spotlight.
Fed Chair Janet Yellen traveled to Jackson Hole, Wyo., Friday to address the Federal Reserve Bank of Kansas City, and in her remarks said that while progress has certainly been made in recovering from the financial crisis, not all indicators yet signal that it would be prudent to raise interest rates in the short term.
The labor market has shown signs of improvement, but "the assessment of labor market slack is rarely simple and has been especially challenging recently," Yellen said in prepared remarks.
She added: "Estimates of slack necessitates difficult judgments about the magnitudes of the cyclical and structural influences affecting labor market variables, including labor force participation, the extent of part-time employment for economic reasons, and labor market flows, such as the pace of hires and quits."
Once the FOMC does have a handle on the labor market, as well as the rest of the indicators it looks to in gauging the economy, should the economy continue to improve, a rate hike could come sooner than has widely been anticipated, Yellen warned.
But despite the recent favorable labor market numbers, a rate hike in the near future doesn't appear to be likely. Yellen said the majority of the committee believes the slack in the labor market is still "significant" and that the FOMC likely will keep rates close to zero for a "considerable time" after quantitative easing sunsets, now expected in October (MarketWatch Aug. 22).
Most analysts believe the Fed won't begin raising rates until mid-2015, or later.