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 "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."
"If the economy or inflation heat up faster than I expect, we should
lift rates sooner," said Williams, who will rotate into a voting
spot on the Fed's policy-setting panel next year, adding that if
progress on those fronts slow, the liftoff should be delayed. He
said any difference between the market's view and his own of the
timing of liftoff is "small."
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William Dudley, the head of the New York Fed, earlier this week also
pointed to mid-2015 as the likely rate-hike date.
But James Bullard, president of the St. Louis Fed, delivered a
warning to investors on Thursday, saying that financial markets were
making a "mistake" in betting that borrowing costs would only rise
later in 2015. Bullard, citing strengthening gauges of labor markets
and inflation, wants the Fed to start raising rates in the first
quarter of next year.
"When there is a mismatch it doesn't end well," he said at a
conference in St. Louis sponsored by his regional Fed bank.
However, Jeffrey Lacker, chief of the Richmond Fed, speaking in
Asheville, North Carolina, said he wasn't particularly alarmed by
any mismatch in the outlook for a rate hike. "The gap is most likely
accounted for by differences in views on how the data is going to
come in," he said.
Lacker, among the most hawkish of Fed policymakers, said he probably
is on the "early side" among his colleagues in terms of expectations
for when rates should rise.
Still, he said, it's "too soon to draw conclusions."
(Reporting by Ann Saphir in Las Vegas,; Additional reporting by
Jason Lange in Washington, Jonathan Spicer in Asheville, N.C., and
Michael Flaherty in St. Louis; Editing by Tim Ahmann and Leslie
Adler)
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