(Reuters) – The Federal Reserve will probably start raising interest rates around the middle of next year, two top officials at the U.S. central bank said on Thursday, although both said the exact timing will depend on the economy.
“What we think now is that the capital markets have it more or less right but we don’t ourselves know when we’re going to do it,” Fed Vice Chairman Stanley Fischer said in Washington.
“On the basis of our forecasts of the data … it looks like markets more or less have it right – somewhere in the middle of the year.”
The Fed has kept rates near zero since 2008 and has nearly quadrupled its balance sheet to more than $4 trillion through a series of bond purchase programs in an effort to push borrowing costs down further and boost hiring.
With the U.S. jobless rate at 5.9 percent and closing in on what the central bank sees as consistent with full employment, officials plan to wrap up their bond buying this month.
Now, investors are rushing to place bets on when rates will rise.
Minutes of the Fed’s September policy meeting, released on Wednesday, showed several officials worried that troubling global growth and a stronger dollar could undercut the U.S. recovery.
Investors took that to mean the Fed would bide its time on rate hikes, and they sent the dollar down and bid stocks up. Futures markets shifted to point to a September hike from July.
The central bank’s only official guidance on the timing is that it would wait a “considerable time” after bond-buying ends, a phrase that Fed Chair Janet Yellen indicated earlier this year meant something along the lines of six months.
Fischer took a step that essentially downgraded the value of the phrase, saying it meant somewhere between two to 12 months, putting investors on notice that it will be economic data, not the passage of time, that will drive policy change.
Speaking in Las Vegas, the president of the San Francisco Federal Reserve Bank, John Williams, declined to put any time frame on the phrase, but did say a mid-2015 rate rise is “a reasonable guess to my mind.”