Fed leaves 'considerable time' statement as a reference, not policy

Fed keeps 'considerable time,' but not as policy

The Fed's not ready yet.

Despite expectations that the Federal Reserve would take its first, albeit tentative, step toward raising interest rates Wednesday, the central bank instead opted to keep a key piece of language in its post-meeting statement.

The phrase "considerable period" has been included to assure financial markets that it would be quite some time before the central bank increased its target funds rate.

Though the statement remained in, the context changed. Instead of dropping the language, it offered a softening of the tone that indicated it was still prepared to hike, though perhaps not as close as the market anticipated.

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The exact language:

Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. The Committee sees this guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program in October, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.

As always, the FOMC left itself wiggle room in case conditions change.

"[I]f incoming information indicates faster progress toward the Committee's employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated," the statement said. "Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated."

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Market participants debated over what it all meant: While the "considerable time" words remained, their meaning seemed to change.

"People were expecting them to drop the term 'considerable time.' That term is still in there, but the way that they've phrased the entire statement appears to say they're backing away from that and changing the language to a stance of being patient," said Ben Garber, an economist with Moody's Analytics.

"They are trying to open up more flexibility to raise rates as needed," he added.

There were three dissents, with two coming from the hawkish side—Dallas Fed President Richard Fisher and Philly Fed chief Charles Plosser—and one from the dovish side courtesy of Minneapolis Fed President Narayana Kocherlakota, who saw the statement as creating "undue downside risk to the credibility of the 2 percent inflation target." A three-dissent vote hasn't happened since 2011.

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Despite the mealy-mouthing, markets embraced the statement. Major averages accelerated from previously higher levels, with the S&P 500 up 1.7 percent for the session.

The Fed has held its rate near zero for six years, since the dark days of the financial crisis pushed it into a position of easing that had no precedent.

Investors had expected the widely telegraphed move, and stocks were trading considerably higher into the 2 pm statement release.

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There is still no set timetable for when rates actually will rise, but market consensus, despite some dissent, is that the FOMC will implement its first official hike in mid-2015.

"This is exactly what the Fed needed to do," said Lindsey Piegza, economist at Sterne Agee. "They are able to maintain their commit to accommodation for a considerable time but they are not using that phrase anymore. They are using the word patient. What that does it removes the market's arguably obsession over these two little words but keeping the same intentions in the policy."

The Marriner S. Eccles Federal Reserve building at sunrise in Washington.
Andrew Harrer | Bloomberg | Getty Images

Fed officials went into the meeting amid a backdrop of volatile financial markets, featuring sagging bond yields and slumping oil prices. Interest rates have been kept on hold while inflation remains below the Fed's 2.5 percent target, even as the unemployment rate has dropped all the way to 5.8 percent, its lowest level since July 2008.

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In an accompanying document, FOMC economic projections changed a touch, with expectations for unemployment showing the most difference. In September, the consensus was for a jobless rate in 2015 of 5.4 percent to 5.6 percent, a projection that is now at 5.2 percent to 5.2 percent.

Inflation expectations in the face of those falling oil prices dimmed significantly. In September, the headline personal consumption expenditures level for 2015 was pegged at 1.6 percent to 1.9 percent, a range that plunged to 1.0 percent to 1.6 percent.

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