Fed Doves Determine the Accommodative Flight Plan for 2015


Written by: John Jespersen

Today’s unanimous Federal Open Market Committee (FOMC) decision, being the first of 2015, was unquestionably less contentious for chair Janet Yellen than the last FOMC decision of 2014. Jeffrey Lacker, being the only hawk of the current FOMC voting members, sided with the accommodative doves for this opening round of the year.

The Fed collegial culture and spirit appears to be back under Janet Yellen’s tenure, but much different than during the Bernanke years of ivory tower academia, or the Greenspan’s era of free market idealism. Time will tell if Janet Yellen leads us toward a pragmatic path of “moderate intervention” or a stronger control-induced expansion of Fed oversight.

Many believe the Federal Reserve will have to push for greater oversight simply to remain relevant in their dual mandates of monetary control and employment; as well as relevant in the rapidly evolving and disruptive global payment systems. Disruptive in the context of technological advances and expertise outpacing the capabilities of Federal Reserve resources, leaving the Fed holding on to its perceived pertinence by its fingernails.

“To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to ¼ percent target range for the federal funds rate remains appropriate.”

Perhaps the use of the word appropriate here is meant for keeping the Fed’s member banks in business and earning a profit, getting more difficult for banks each day. However the Fed states they are taking a balanced approach and will do so to remove policy accommodation consistent with its longer-run goals of maximum employment and inflation of 2 percent.

The question of the year remains: When will the Federal Reserve increase interest rates? In their own words: “The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.”

With no incumbent U.S. President, and not much fear of the Fed being blamed for election manipulation, the target federal fund interest rate may very well be pushed out to the latter part of the year. But don’t bet against the Fed. Janet may very well surprise us all. Remember – she’s no Bernanke or Greenspan – she’s her own woman and measured in her monetary approach.

For now consider it a potentially good time to refinance the mortgage and other debt if you haven’t already done so.

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