Improvements in the labor market , with job growth of well over 200,000 jobs a month in 2014, continue to strengthen the Fed’s view of a stronger US economy. The official unemployment rate in the US is now at 5.8 percent and the Fed sees further reductions from 2016 to 2017.
But inflation is still far below the central bank’s target and that the housing market is not improved more than it did surprise Fed Chairman Janet Yellen, she explained at yesterday’s press conference.
Inflation should reach the target of 2 percent around 2017, believes the Fed, and increase the interest rate is not to wait even for months.
– The assessment we make now is that any normalization of interest rates is not current during at least one pair interest meetings, said Janet Yellen interest after Wednesday meeting with Fed FOMC committee.
On a direct question she made it clear that “a few” means “two”.
Debt and equity markets have been intensely focused on trying to predict when the Fed conducts an initial increase of the key interest rate at between 0 and 0.25 over five years since the recession and financial crisis.
The Fed announces a change of language to describe when the increase can be done, but the change in itself does not change the bank’s tangible monetary policy, according to Yellen, but is just a way of expressing the same thing as you already said. In several previous bulletins from the Fed, there has been an increase in interest rates will take a “significant” time after the support purchases of government and mortgage bonds ended in October. They added that most 85 billion dollars a month to the US economy.
– Now we say instead that the central bank “can be patient” with a raise, said Yellen.
As regards inflation, so reduced inflationary pressures in part by the shocking drop in oil prices, which passed under $ 60 a barrel recently. It further reduces the need for a higher interest rate.
But according to Fed chief’s oil effect only short-lived and the central bank does not significantly change its inflation forecast.
– What we have seen since the 1980s is that such oil price fall seems to have transitory effects on inflation. Higher oil prices in the future will clearly move upward pressure on inflation, but we believe that said that the effect is also transient, said Janet Yellen, who also noted that the oil price collapse will bring positive effects.
– The committee believes to cheaper oil is clearly good for households, it gives them more money when gasoline is cheaper.
– There may of course be no effect in oil drilling, but overall, I see the low price as positive for the US economy, said Janet Yellen.
The crisis in Russia, where ruble slumped dramatically, assesses Yellen has limited effects on the United States.
– the impact on Europe is of course a little bigger, because Russia sells large amounts of energy there, she said.
One of Janet Yellens strongest warnings this year has otherwise acted on labor market problems. Some of them still remain, although decreasing, according to Fed chief.
– Job growth has averaged 285,000 for several months. Many Americans have simultaneously stopped completely with job search, but would do so if the labor market improved.
The growth in the next year for the US economy assesses the Fed ends up somewhere between 2.6 and 3 percent, unchanged from the previous . The inflation forecast, including energy prices, reduced slightly in 2015 to between 1 and 1.6 percent, down from 1.6-1.9 percent.
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