Fed faces big decision over a few choice words

Mon Dec 15, 2014 1:05am EST
 
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Jonathan Spicer

NEW YORK (Reuters) - Federal Reserve officials will decide this week whether to make a critical change to their policy statement that would widen the door for interest rate hikes next year and effectively bet the United States will continue to shine in a gloomy global economy.

In one of the last major wild cards for financial markets in 2014, the U.S. central bank's policy-setting committee is to issue the statement and fresh economic forecasts on Wednesday at 2 p.m., following a two-day meeting. Fed Chair Janet Yellen will then hold a news conference at 2:30 p.m.

The U.S. economy has strengthened and jobs have been created at a faster-than-expected clip since the Fed's last meeting in October, when it repeated that benchmark rates were unlikely to rise for a "considerable time." Officials will have to decide whether to replace that phrase despite below-target U.S. inflation and economic weakness in Europe and Asia.

Top Fed officials have suggested mid-2015 is a reasonable time to start tightening monetary policy after six years of near-zero rates, and financial markets generally agree.

As investors search for clues on when and how aggressively the Fed might move, here are the key things to watch:

THE LIFT-OFF LANGUAGE

The Fed has been toying with dropping the "considerable time" phrase since at least September. In October, it restated the pledge but made clear that rates could rise sooner if economic data were strong, and later if they weren't.   Continued...

 
U.S. Federal Reserve Board Chair Janet Yellen delivers her welcoming remarks before the European Central Bank, Federal Reserve Board and Federal Reserve Bank of New York Conference at the Federal Reserve in Washington November 13, 2014.   REUTERS/Gary Cameron