The Federal Reserve turned financial commentators into would-be linguists Wednesday. The Open Market Committee did not raise interest rates, but it did alter the language used to describe its willingness to wait to raise interest rates.
Most notably, the FOMC said “it can be patient in beginning to normalize the stance of monetary policy.” It’s the word “patient” that’s new here. Their previous statement, released in October, had simply said the Fed expected to keep the Federal Funds rate low “for a considerable time following the end of its asset purchase program.”
Wednesday’s statement, released at the end of the FOMC’s last meeting of the year, did not remove the “considerable time” language; it just shifted its placement. And while the inclusion of the word “patient” — a rare in change in usually very formulaic FOMC statements — provoked confusion among commentators and the market, Chairwoman Janet Yellen emphasized in her press conference that a change in language did not signify a change in policy.
The reason they changed the language, Yellen said, is because the asset purchase program to which they referred in October is now over. The Fed ended quantitative easing at its October meeting. “It seemed less helpful,” Yellen said Wednesday, “to continue to communicate about the possible timing of our first rate increase with reference to an event that is receding into the past.” Instead, she said, they adopted the word “patient” as a way of looking ahead to the labor market conditions and inflation measures that might cause them to raise rates in the future.
But the FOMC doesn’t expect that normalization of rates — what Yellen repeatedly called “liftoff” — to happen for at least “a couple” of FOMC meetings. Most committee participants, Yellen said, expect to raise rates sometime in 2015.
The Wall Street Journal’s Fed Statement Tracker highlights all of the changes between October’s and Wednesday’s FOMC releases.