language

Krishna Guha

Will they / won’t they? All eyes will be on the Fed statement issued around 2pm EST Wednesday to see if there is any change to the “extended period” language the US central bank uses to guide market expectations of the future path of interest rates (last FOMC statement).

The current formula is as follows: “the Committee…continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.” Translated from Fedspeak: the committee does not expect to raise interest rates from the current level of near zero for a period some officials define as at least six months, others as longer than this.

As I first reported in the FT ten days ago – and my excellent competitor Jon Hilsenrath of the WSJ subsequently confirmed – Fed officials are starting to mull changing the “extended period” language. I/we know this for a fact. The question is whether they are far enough along in this process to make a change at this meeting.

Unlike most analysts, I don’t think we can rule this out. But I do agree that the likelihood of a change this time is a good deal less than 50-50 – for two reasons