Following the superb Non-Farm Payrolls report, which finally included a pickup in wages, speculation is mounting about the timing of the interest rate hike in the US. The year is 2015 and this is becoming clearer, but there is a huge difference between March and September.
In order to lift the Federal Funds Rate sooner rather than later, the Fed would most likely signal this by removing the all-important phrase about keeping interest rates at low levels for a “considerable time”. This may come already in the upcoming meeting on December 17th.
Fed watcher Jon Hislenrath of the WSJ suggests that the FOMC could remove this closely watched phrase already now. He says that senior officials are looking to drop this phrase, which is seen by markets as meaning a period of at least 6 months.
In her first press conference as Fed Chair, Janet Yellen answered a reporter’s question by saying that a “considerable time” between the end of QE and a rise in rates would be 6 months. This meant sometime in April 2015. Her words back then in March spooked markets and she didn’t repeat them but returned to vaguer wordings.
Hilsenrath bases his assessment on changes in wordings by Fed officials, including Stanley Fischer on the wages and dropping the phrase, as well as a usage of the words “patience” instead of “considerable time” by William Dudley.
At this neck of the woods, we see wage hikes as being just around the corner, and the recent NFP finally shows this. With a pickup in wages, a rate hike in March cannot be ruled out.
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