WASHINGTON — Janet Yellen tried at her first news conference as Federal Reserve chairwoman to clarify a question that has consumed investors: When will the Fed start raising short-term interest rates from record lows?
Yellen stressed that with the job market still weak, the Fed intends to keep short-term rates near zero for a "considerable" time and would raise them only gradually. And she said the Fed's move wouldn't be dictated solely by the unemployment rate, which she feels no longer fully captures the job market's health.
But Yellen might have confused investors when she went further. She suggested that the Fed could start raising short-term rates six months after it halts its monthly bond purchases, which most economists expect by year's end. That would mean short-term rates could rise by mid 2015.
A short-term rate increase would elevate borrowing costs and could hurt stock prices. Stocks fell after Yellen's mention of six months. The Dow Jones industrial average ended the day down more than 100 points.
The Fed's latest statement, issued after a two-day meeting ended Wednesday, said its benchmark short-term rate could stay at a record low "for a considerable time" after the Fed's monthly bond purchases end. The Fed has been gradually paring its monthly bond purchases, which have been intended to keep long-term loan rates low. Most analysts expect the purchases to end by December.
"This is the kind of term it's hard to define," Yellen said of "considerable time."
"Probably means something on the order of six months, or that type of thing."
Yellen devoted much of her news conference to explaining why the economy still needs a boost from the Fed. She said low inflation and meager pay raises for many workers reflect a weaker recovery than the decline in the unemployment rate may indicate.