Fed's Yellen Hawks a Foggier Rate Future
It isn't the forecast but the weather that tells you when to open the umbrella.</br></br>Janet Yellen opened the Kansas City Federal Reserve annual symposium in Jackson Hole, Wyo., Friday with the observation that conditions in labor markets have outperformed Fed forecasts--and that if this continues the Fed funds target rate could rise earlier and more rapidly than expected.</br></br>That is a subtle change of emphasis from the Fed chairwoman. Consider a speech she gave at the Economic Club of New York in April. The background message was the same--monetary policy isn't on a preset course and will change based on economic conditions. But the policy implications of this centered around the possibility of a labor "shortfall" necessitating a continuation of ultralow interest rates.</br></br>Now Ms. Yellen is also talking about the possibility of raising rates sooner and at a brisker pace in the case of a "faster convergence" toward the Fed's labor market and inflation goals.</br></br>Additionally, Ms. Yellen noted that the labor market may not have as much slack as stagnant wages might seem to indicate. The inability of some employers to push down wages during the economic slump may have resulted in "pent-up wage deflation" that could hold worker pay down even as the labor market tightens.