Global markets have been operating with the safety net of the Federal Reserve’s zero-rates guidance for much of the current decade. On Tuesday, Fed chairwoman Janet Yellen gave the strongest signal to date that the end of that era is approaching as she paves the way for higher interest rates.
In testimony to a Senate committee, Ms Yellen indicated that if the economy carried on strengthening, the US central bank would want to drop its pledge to be “patient” with interest rates and start considering rises on a “meeting-by-meeting basis”. She said this would mean that a move in the target rate could be considered at “any” of the Federal Open Market Committee’s regular policy gatherings.
The impending change in guidance — which analysts think could come as soon as the Fed’s next meeting in March — suggests the central bank wants to give itself maximum flexibility to set monetary policy, rather than finding itself bound by date-dependent pledges.