Fed Looks Likely to Stick to Policy Path; Officials On Track to Cut Bond Buys to $45 Billion, Maintain Rate Flexibility at Next Week's Meeting
Federal Reserve officials are on track to reduce their monthly bond buying to $45 billion at their policy meeting next week and stick with a communications approach that leaves investors guessing about when the central bank will start raising short-term interest rates.</br></br>"While monetary-policy discussions naturally begin with a baseline outlook, the path of the economy is uncertain, and effective policy must respond to significant unexpected twists and turns the economy may take," Fed Chairwoman Janet Yellen said in a speech at the Economic Club of New York last week, her last comments before the central bank's one-week quiet period ahead of its April 29-30 policy meeting.</br></br>Her emphasis on uncertainty in the speech underscored a shift in Fed communications early in Ms. Yellen's tenure as chief. For much of the economic recovery, the Fed has tried to provide concrete assurances to investors about the path of short-term interest rates. Officials now are trying to retain some flexibility on the interest-rate outlook as they try to resolve several mysteries about the recovery, which has generated surprisingly slow economic growth, low inflation and faster declines in standard measures of unemployment than expected.</br></br>"Tying the response of policy to the economy necessarily makes the future course of the federal funds rate uncertain," Ms. Yellen said last week, referring to the Fed's benchmark short-term interest rate, which has been near zero since late 2008. Other Fed officials have sounded the same refrain in recent comments.</br></br>In 2011 and 2012, the Fed's interest-rate assurances came in the form of promises that officials wouldn't raise rates until after certain dates passed. Then in late 2012, the Fed switched to economic markers, saying it wouldn't shift short-term rates until after the unemployment rate fell to 6.5%. The jobless rate was 6.7% in March.