Hypothetical Answer

By Isaac Cohen*

Officials prefer not to answer questions based on what may happen, or as the saying goes they do not like to answer “hypothetical questions.”

Last week, at the press conference held at the conclusion of the meeting of the Open Market Committee, Federal Reserve, Chairwoman Janet Yellen was asked to clarify when interest rates will begin to increase. This is the crucial question about the future orientation of US monetary policy.

On this topic, the statement issued, at the end of the Federal Reserve meeting, reproduced the declaration that the federal funds rate will be kept close to zero “for a considerable time.”

Recent indicators of economic performance support this accommodative posture. Economic growth projections for 2014 were revised downwards, after the winter slip of January and February, from close to 3 to 2.2 percent. Additionally, unemployment still is elevated at 6.3 percent, while inflation persists below the 2 percent objective.

Recognizing there is uncertainty in monetary policy, because the economic outlook remains uncertain, Chair Yellen gave a hypothetical answer to the question “until when?” She said, the federal funds rate target is contingent on the economic outlook. If the economy proves to be stronger than anticipated, interest rate increases will occur sooner. Conversely, if economic performance disappoints, interest rate increases will take place later and will be more gradual.

*International analyst and consultant. Commentator on economic and financial issues for CNN en Español TV and radio. Former Director, UNECLAC.

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