Two words to watch for at next Fed policy statement
NEW YORK (CNNMoney) “Two Words” is a track on Kanye West’s debut album. It might as well be the theme song for the market and Federal Reserve too.
When the Fed issues its policy statement on Wednesday afternoon at 2 p.m. ET, the only two words that may matter to Wall Street are “considerable time.” Here’s why.
The Fed has used these words to describe how long it will be before it starts to raise interest rates again.
The central bank cut its key short-term rate to near zero at the height of the credit crisis/Great Recession in December 2008. Rates have been at those historic lows ever since.
And even though the economic recovery has been painfully slow and inconsistent for many, it still is a recovery.
So are rate hikes coming soon? The answer to that question is also the name of Kanye’s collaborator on “Two Words” — Mos Def. It’s just a matter of when.
If “considerable time” remains in the statement, Fed watchers will assume that the central bank is likely to keep rates near zero until next summer.
That’s what Wall Street is hoping for right now. Stocks rose on Tuesday after the Wall Street Journal’s Fed reporter suggested that “considerable time” is going to stay in the statement.
But if those words are removed, there will be instant speculation (and probably a lot of market jitters) about the Fed possibly moving to raise rates as soon as next spring.
“If the Fed wants to leave the door open for a March interest rate hike, it will need to drop the ‘considerable time’ language,” said Zach Pandl, senior portfolio manager and interest rate strategist at Columbia Management.
“This indecision’s bugging me” Pandl thinks the Fed will probably keep those two words in the statement Wednesday.
But obsessing about if they should stay or should they go now may be a moot point. (If they go, there will be trouble?) Pandl said it is a “virtual certainty” that the “considerable time” language will be cut from the Fed’s next statement in October.
