When the Federal Reserve finally starts raising interest rates, don’t count on the predictable, steady increases that ultimately created problems when the financial crisis hit. Rather, rate increases will be done at a glacial pace tied more tightly to current economic data.
At least that’s what the experts trying to read the tea leaves think.
A Bloomberg story on Monday detailed recent comments from several Fed officials that showed their preference for keeping money “cheap for a long time to come.”
Fed officials have signaled they wouldn’t raise rates at the next meeting of the Federal Open Market Committee, on April 28 to 29. But when they do finally start increasing rates, “we will simply be moving from an extremely accommodative monetary policy to one that is only slightly less so,” New York Fed President William C. Dudley has said.
Most economists now expect the Fed to wait until September, with 70% predicting that timing in a recent survey, up from 32% last month, Bloomberg wrote.
Moreover, future increases — or even decreases — will depend on actual economic data, Fed Chairman Janet Yellen reportedly said at a March 27 conference in San Francisco.
“Policy tightening could speed up, slow down, pause, or even reverse course depending on actual and expected developments in real activity and inflation,” Yellen said in a speech in San Francisco last month.
This would be in contrast to the last period of increases a decade ago, when the Fed announced ahead of time its intention to raise rates in quarter-point increments at every meeting. It had to reverse direction in 2007 when the mortgage market began to melt down and large banks began to fail. FbSkip
“There is a lingering sense that the steady rate hikes that you saw in 2004 and 2006 contributed to the financial imbalances that built up, because the Fed was so predictable that people could rely on it, but that ends up coming at the cost of increased leverage,” Michael Feroli, JPMorgan Chase & Co. chief U.S. economist and a former Fed economist, told Bloomberg.