Tag Archives: fed

Citigroup’s Stress-Test Mess

After the most recent series of bank stress test results released by the fed this week, several banks faced greater scrutiny over their financial practices. Out of 30 banks tested, five banks, including Citigroup Inc., Zions Bancorp, and the U.S. units of HSBC Holdings PLC, the Royal Bank of Scotland Group PLC, and Banco Santander SA did not receive the FED’s approval. Citigroup Inc. in particular faced the largest setback after the Federal Reserve rejected the bank’s proposal to reward investors with higher dividends and stock buybacks. According to the Wall Street Journal, the bank’s second rejection in three years was the result of the bank’s deficiency in it’s ability to project revenue and losses under stressful scenarios in parts of the firm’s global operations. This comes even after the results showed that Citigroup’s Tier 1 common capital ratio was above regulatory thresholds, and at 6.5% above many other banks that did receive approval.As the Fed pointed out, this rejection was based on qualitative problems with the stress tests, such as with internal risk management which oversees tasks including financial risk audits and organizational risk assessment. At the end of the day, while the quantitative measures looked good on paper, the Fed did not appear satisfied with the level of safety and foresight Citigroup has shown in the past few years after the financial crisis. As a result, Citigroup and the other four banks must submit revised capital plans and suspend any increased dividend payments, the latter of which will likely cause disappointment to shareholders.

While Citigroup’s rejection certainly is not a great outcome for the bank, as it may damage its reputation and credibility as a lender and insurer. And it’s certainly an embarrassment because this recent development makes Citigroup only the second bank, aside from Ally Financial, to have its capital plan rejected twice by the Federal Reserve. But overall it isn’t necessarily a bad thing for the firm. First, the firm has a strong store of capital set aside, which could act as a buffer in case of a strong negative shock to unemployment or the stock market. Second, Citigroup’s rejection is a signal by the Fed that the firm needs to correct perceived deficiencies in its operations. Like in a first submission of an article to an academic journal, the Fed, like the peer reviewer, can send back Citigroup’s capital plan with harsh critiques, edits, and an outline of the necessary requirements. This may serve to point out potential problems in risk management or governance that Citi had previously missed. Since these problems may eventually hurt the firm down the line, if uncorrected, it’s in Citigroup’s best interest to, like an academic economist, take the critiques with a grain of salt and use them to form a plan to fix the company’s risk management. This may mean a reorganization of managers and executives, and the employees in the deficient departments may face layoffs, but if Citi can fix their deficiencies they may come out of this a healthier company.

On the other hand, the people who will face the most problems as a result of the Fed’s rejection are the shareholders (Citigroup’s stock fell 5% after hours today), and the firm’s new CEO Michael Corbat. As a consequence of Citi’s failed capital plan, it has been refused the ability to raise its dividend, which currently sits at a quarterly penny-a-share, and to engage in a share buy-back program. This doesn’t bode well for Corbat, since pleasing shareholders is one of the main goals of a modern CEO. The inability to issue a dividend means that the shareholders won’t be rewarded directly, and the inability of Citi to issue a stock buyback means that shareholders won’t enjoy the benefits of “concentrated” stocks (after a buy-back a shareholder will essentially own a larger share of the company). And the lack of confidence by the Fed in Citi’s risk procedures may make investors wary of the company in the near future, meaning that the company may face negative returns in the shortrun, which may further agitate some shareholders. Overall, this is hardly a pleasant start for the new CEO.

 

 

Volcker Rule and more Fed Tests

In my last post, I talked about the Federal Reserve’s annual stress test. But after doing a little more research, I learned that this test hasn’t existed for that long and infact is only an offspring of a recently passed piece of legislation, the Dodd-Frank Act. In response to the financial crisis of 2008, the US Congress came together to pass this piece of Wall Street reform.

Wall Street reform has happened sparsely through this country’s history. From he Sarbanes-Oxley Act of 2002 in response to the Enron corporate and accounting scandal (as discussed in “A Random Walk down WallStreet”) to as far back as the Glass-Steagall Act of 1933, which placed a “wall of separation” between banks and brokerages (though much of this was largely repealed in 1999, right around the internet bubble; more “A Random Walk down WallStreet”) there really hasn’t been that much regulatory action. But Glass-Steagall arguably came back in its 21st century form as the “Volcker Rule”, named after former Fed chair Paul Volcker. His advice was, in its simpliest form, to not allow banks to proprietary trade. Though Volcker’s advice was not completely implemented as law, it was more or less implemented in a limited scope. In addition to these stress tests, there is also a financial oversight council to continually watch for risks in the financial system.

But yes, this new annual stress test was a piece of the puzzle in Congress’s response to the recent financial crisis. In fact, the Fed DID delivery on their promise of a complete correction to the test results on their website by Monday (today).

Release Date: March 24, 2014

For immediate release

The Federal Reserve on Monday issued full corrected results for the 2014 Dodd-Frank Act stress test.

As announced on Friday, the Federal Reserve adjusted the stress test results to address inconsistencies in the treatment of the fourth quarter 2013 actual capital actions and assumptions about preferred and employee compensation-related issuance over the course of the planning horizon.

Dodd-Frank Act Stress Test 2014: Supervisory Stress Test Methodology and Results (PDF)

For media inquiries, call 202-452-2955.

Like last post, I attempted to find professional (or seemingly professional) opinions on this correction (or mostly the need for a correction) by the Fed. My conclusion is this: people really seem to trust the Fed with this test (or at least don’t know enough to challenge their methods). So I did find more information about the administration in the test (though most news outlets don’t really seem to care). The test adminstrated is “based on 28 variables, which include a U.S. unemployment rate of 11.25 percent, a 50 percent drop in equity values, and a fall in GDP and the U.S. dollar’s value” (Forbes). It would be nice to know whats stopping a company from just faking or overstepping nonbias dicretion persay.

Fed’s Annual Stress Tests

 

The Fed has recently performed its annual round of stress tests on US firms.

Of the 30 institutions scrutinized under hypothetical shifts in the U.S. economy, 29 had enough capital to continue lending and thus not freeze the velocity of money. As we know, monetary velocity. Some of these tests lined up to two adverse scenarios where the housing market bust and a spike in unemployment, fairly similar to the 2008 crisis. MarketWatch had some final data and a list of the banks tested.

I’m curious as to the grading of these tests. I wonder how an institution could enhance their score. I decided to do some research into the exact practice of the test to (1) determine whether or not it can be cheated and (2) see if the data interpretation is adequate. As someone who has a much less than professional understanding, I’ve decided to search if anyone else has raised their questions and present their arguments.

Unfortunately, due to the release being rather recent. So I ventured to federalreserve.gov where they had many links to related press releases and documents. Something that caught my eye was that the results were ‘corrected’, and thus incorrect upon the initial release. Under the name 2014 Dodd-Frank Act stress test here’s what the release had to say:

Release Date: March 21, 2014

For immediate release

The Federal Reserve on Friday issued corrected results for the 2014 Dodd-Frank Act stress test.  For 26 of the 30 firms, the correction led to either no change or at most a 0.1 percentage point change in the firms’ minimum, post-stress tier 1 common capital ratios in the severely adverse scenario.  The change led to a 0.3 percentage point increase at two firms, a 0.2 percentage point decrease at one firm, and a 0.5 percentage point decline at another.

The capital ratios were adjusted to address inconsistencies in the treatment of the fourth quarter 2013 actual capital actions and assumptions about preferred and employee compensation-related issuance over the course of the planning horizon.

The attachment reflects the updated minimum tier 1 common capital ratios and the changes from the prior release.  The Federal Reserve will reissue a full result paper on Monday with corrections as they affect all capital ratios.

For media inquiries, call 202-452-2955.

So the mistakes were minor, but I’m deducing that the tests must be quite complex for mistakes to be made by the Federal Reserve (I mean come on, that’s THE central bank). Prior year’s results have been called out as flawed, but I’ve found no strong supported evidence. The Fed’s test is most likely a strong measurement of these institutions, but like anything else should strive to hold a high standard through dissection.

Federal Reserve Releases Results of Stress Tests

The results of the 2014 Federal Reserve’s stress tests on the nations leading banks and financial organizations were released to the public last week, providing an overview of the health of the U.S. banking system after the 2008-2009 crisis. The annual stress tests are designed to determine whether banks could withstand hypothetical shocks to the U.S. economy, such as a surge in unemployment or severe drop in housing prices, and be able to weather heavy losses during market turmoil. This year they found that 29 of the largest 30 institutions have stored enough capital to withstand the FED’s shocks; only Zions Bancorp, a regional lender based in Salt Lake City failed to make the minimum requirements.

Screen Shot 2014-03-22 at 10.26.36 PM

While the FED is notoriously secretive with the exact equations and data they use to construct their test and rank institutions, they release their framework and general methodologies on their webpage. One important ratio they use to determine the fortitude of a banking institution is called “Tier-1 Common Capital,” which is a ratio of the bank’s core equity capital to its total risk-weighted assets. Risk weighted assets are simply the total assets held by an institution weighted by their credit risk according to the FED’s formulas (which it does not release). According to the Wall Street Journal the FED has now defined the appropriate minimum value of the Tier-1 common capital of an institution to be 5%, which means that a bank needs to hold at least 5% of its risk adjusted assets in capital in case of a severely adverse scenario. This severely adverse scenario features a deep recession, rising unemployment rate, severe drop in housing prices and around a 50% decline in stock prices over nine quarters. According to the results presented in the Wall Street Journal, 30 banks would have suffered total loan losses of $366 billion, trading losses of $98 billion and a net loss before taxes of $217 billion. In other words, in order to ensure that the wealth of the bank’s customers is safe, a bank needs to have enough capital on hand to get through even the toughest of times. All except for Zions Bancorp met this minimum requirement, but certain banks such as Morgan Stanley and Bank of America, which are considered integral pillars of the financial system, just barely meet this requirement.

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This new information suggests that banks are much healthier than they were even a year ago, which should help inspire confidence in the U.S. financial system. Other information, such as the Chicago FED National Financial Conditions Risk Subindex suggests that overall levels of volatility and funding risk have dropped to near pre-crisis levels. Here, positive values indicate tightening, more risky financial conditions while negative values indicate loosening, less risky financial conditions. The current level around -1.0 suggests loosening financial conditions and a financial system that is beginning to appear safe once again.

Screen Shot 2014-03-22 at 10.50.12 PM

 

Since these risk measures all take expected risks into consideration, which is simply a probability of a negative financial outcome occurring in the future, there is still uncertainty in the results. For instance, one risk measure that regulators take into consideration in these stress tests is called Value at Risk (VaR) takes past market fluctuations into account when attempting to predict the future fluctuations. However, historical measurements of risk cannot predict future risk by themselves. If there are unknown risks in the markets these measurements may miss them. Therefore, any risk measurement, calculated by the FED or otherwise, must still be taken with a grain of salt and used to provide a general level of risk in the financial system, not an exact level.

Overall, it’s hopeful that the U.S. financial system is beginning to stabilize and that greater financial oversight by regulators including the FED alongside greater safety measures introduced by banks will reduce the risk of financial calamity after strongly adverse scenarios.

 

Where are we on recovery?

Has U.S. economy been recovering in the right path? This has been the million dollar question, or rather, the trillion dollar questions for everyone. Since 2008 and the great recession, there has been a lot of hurdles in the way like the high unemployment, low inflation rates or other negative exogenous events including the Euro Financial Crisis and the recent heightened tension in Russia that caused worries in the market.

If you look at my past posts, there were some consistencies in few series that the Fed and the government is indeed moving towards adjusting their position for recovery path. The Fed’s continued tapering, increase in minimum wage for federal workers and switching interest rate hike threshold from unemployment rate to the tapering amount.

I want to introduce another sign that may point to US recovery is indeed on path. The Fed has announced that 29 of the 30 top tier banks passed the stress test in the case of a big shock in the market. This has multiple implications. First and very simple implication is that finance sector, which caused the big hassle for all of us, has come to be more stable. Second is that individual banks may be able to give back billions of dollars to its investors in dividends and buyback outstanding share. This is particularly important because dividend payouts and share buybacks for banks require Federal Reserve’s approval. Although this auditing and approval may be more subjective to each banks, 29 top tier banks passing the test may be sound news for investors looking for gain of confidence in the market.

The stress tests are made to prevent any future crisis like that of 2008. It took $700 billion dollars worth of taxpayers’ bailout program to bring back what was left of the melt down. It looks at banks’ current financial health like capital ratios, revenue and loss rates under different scenarios compiled by the Fed. One that does not pass the test has a high chance for not being approved for dividend payouts.

One of the main fundamental things that we should be aware of is the amount of capital that is available for the depositors in case of a panic attack. Think back to the great depression where everyone made a run to the bank to withdraw deposits. Because banks were not able to provide everyone with their money.

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Look at the great recession and the great depression period on the graph. There was a large deflationary movements along the graph. Now, the Fed wants to assure that there is enough capital for banks to endure higher degree severe events.

Lest to say that this is a perfect protection sign for the financial industry, but it is sure a sign of good recovery.

The Fed Ties Interest Rate Raise to the Tapering Instead of Unemployment Rate

Following today’s Fed’s meeting, the meeting statement has been scrutinized by every word to word. Of course, the biggest headline news was the Fed’s move to drop the unemployment rate of 6.5% as a threshold rate for raising interest rate from its meeting statement. Not only are Fed watchers reading the statement literally word to word, but also some of the policymakers at the Fed worried that some paragraphs of the statement might stir the market to a wrong way. To be more precise, Minnesota Fed President Narayana Kocherlakota was the only voting member who voted against the Fed’s decision to remove the key number of 6.5% from the statement. He says that the a paragraph in the statement may signal the Fed’s weakness when it comes to reaching the long-term inflation rate of 2%. The paragraph he was referring to is following:

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate. In determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, 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 [emphasis added].

It seems like the last sentence could have caused Mr. Kocherlakota to vote against the action because of it’s  possible inference of a lasting low inflationary period. As low inflation has continued since 2012, inflation expectation, also, hasn’t been reaching the goal of 2%. The expected inflation in 10 years is still lower than 2%. The following graph provided by the Cleveland Fed shows the market’s expectation of inflation in certain time horizons :
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Considering the low expected inflation in next few years, Mr. Kocherlakota’s worry of weakening the credibility of the Fed’s commitment to the 2% inflation is indeed valid. The Fed’s main goal thorough its forward guidance is to lower the expected interest rate for certain duration, but it’s another goal from which the FED is quite away from reaching it is to raise the inflation expectation, which in turn lowers the real interest  rate and boost investment.

Now let me interpret the Fed’s statement in my way. The WSJ posts an interesting post on how the latest Fed’s statement changed from last month’s. The following passage shows the change made in the statement from last month:

The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percentfor a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent, and provided that longer-term inflation expectations remain well anchored.

As we see from the change made in the statement, the Fed untied the possible date of raising interest rate from the unemployment rate and related it more to the Fed’s tapering process and its ending. Now, the Fed watchers should be giving more weights to the tapering process than before since it is now more related to the raise in interest rate.

This change could be progress forward for the Fed because as the tapering continues for at least throughout 2014, the market will have stronger signal of the Fed’s raising interest rate in near future. Even though then higher expected interest rate might seem worse for the economy, raised expected interest rate could actually induce more investment today, which is opposite to what one might assume. Because, the market will be surely knowing the coming of the raise in the interest rate in few months, firms should take advantage of the low interest rate today by borrowing and investing rather than postponing the investment project. This idea of surely known interest rate increase could create more investment is explained in my one of the previous posts.

 

U.S. Banking Instability

In early February, Jeffery M. Lacker of the Federal Reserve Bank of Richmond gave a speech at Stanford about the systemic instability.  The full speech is here, and most of it is easy to understand.  I will spend this blog post summarizing and commenting on the speech and the points that he made about the fundamental problem with our banking system and then the ways he believes we can fix those problems.

Lacker states that the recent financial crisis didn’t really fix the problem of banks that are “too big to fail”, which played a major role in initiating the crisis itself.  He states

“In my view it is best described as two mutually reinforcing conditions that seriously distort the incentives of financial market participants to monitor and control risk. First, creditors of some financial institutions feel protected by an implicit government commitment of support should the institution become financially troubled. Second, policymakers often feel compelled to provide support to certain financial institutions to insulate creditors from losses. “

Let us take a look at these two conditions:

Implicit Government Support: Not only does the federal government insure bank deposits up to $250,000, but during the most recent financial crisis, the government help facilitate the bail out of Bear Stearns and other financial institutions.  Deposit insurance was originally created during the Great Depression to try and prevent bank runs from happening, and thus in the early 20th century, deposit insurance did produce stability in the banking industry.  However, banking networks today look far different that they did eighty years ago; during the Great Depression banks were usually single branches, and thus had no way of transferring money quickly to stop a bank run, whereas today banks could transfer money easily to a branch that needs it.  Now, instead of providing financial stability, deposit insurance provides a government safety net that encourages risk taking, and thus decreases financial stability.  The government bailout of Bear Stearns reinforced the message that the government wouldn’t let a major institution fail, and this implicitly encourages banks to take more risk.

Thus, after the most recent financial crisis, the Dodd-Frank Act was passed that included hundreds of provisions intended to decrease systemic risk taking.  Thus, incentives are increased to find ways around regulated markets, which has lead to the growing “shadow banking” sector.

Compelled Policymaker Support: This condition is best seen in the moral hazard problem that the government faces with regards to the banking industry.  I believe that the federal government didn’t necessary want to help bail out Bear Stearns and other banks, but they were afraid of the chain reaction and uncertainty that would result from the failure of a banking institution.  When the Treasury didn’t react immediately to the banking crisis, the stock market dropped somewhere around 20% in a single week.  Therefore, the government has been compelled to support the bailout of banks to protect the assets of Americans.

Lacker goes on to point out that instead of fixing the problem of banks being “too big to fail”, the strategy of the Dodd-Frank Act is to stop banks from failing in the first place.  Unfortunately, the Dodd-Frank Act didn’t break the mutually reinforcing conditions laid out earlier.  In fact according to research by the Richmond Fed, the government safety net for financial sector liabilities was the same in 2009, before Dodd-Frank was passed, and in 2011, after it was passed.  This data indicates a failure of the government to properly incentivize the banking industry to mitigate the risks that they are taking.  Banks understand that since the government safety net is still in place, despite all the new regulations, they can still take large risks, and even if the bets go bad, they don’t have to fully pay the consequences of their actions.

The difficult with this problem is that breaking the cycle is politically difficult and could potentially be painful economically.  In order for banks to believe that the government won’t bail them out, the government almost needs to let a major institution fail.  Although the banking system is somewhat less connected than it was during the 2008 crisis, a major failure could still cause strain on the whole sector.  Hypothetically, if a bank manages to fail despite the new regulations, the government has a difficult decision between letting them fail and potentially helping the system in the long run by giving banks the correct incentives to reduce risk, or bailing them out and perpetuating the broken system. Hopefully we won’t have to figure this out for a long time (because we have no crises), but I curiously await the government’s decision.

 

Quite the Start for Yellen

Today was Janet Yellen’s first meeting as Chairwoman of the Federal Reserve. She announced that short-term rates were going to remain near zero. According to the Wall Street Journal, she is playing down the fact that rates are going to rise sooner than said. The article continues to say that investors are speculating that rates will increase a lot more aggressively. The New York Times covered the same story. Both articles mention the Federal Reserve’s decrease in the purchasing of bonds. In the article in the Times, the Fed has decreased its bond-purchases to $55 billion. The Fed is finally believing that the ongoing economic recovery is self-sustaining. Short -term interest rates will be kept near zero even after the unemployment rate falls below 6.5%.

The Washington Post covers this story from an unemployment perspective. It is true that the unemployment rate has been dropping. The article goes on to discuss that this is due to the fact that fewer people are working and trying to find work. This is another way of saying that the labor force is shrinking. This could be a false indicator of the United States economy becoming healthier.

This year, the Federal Reserve has introduced a tapering policy. That means that it is cutting back on its bond purchases, which is how it is attempting to stimulate the economy. When the Fed purchases bonds, short-term interest rates get closer to zero. The reason why the Federal Reserve is cutting back is that the economy is showing better signs of recovery. Investors believe that short-term rates will rise as this tapering continues. That makes sense, the Fed is stimulating the economy less.

I think that the employment situation directly applies to A Random Walk Down Wall Street. So, the unemployment rate has been dropping recently. At first glance, this would seem like a good thing because employment has been one of the greatest concerns in this economic downturn. In his book, Mankiel’s main point is that going by past and projected trends is not the best way to go about investing. An investment can go anywhere at any time. The same thing can be said about employment. Right now, it seems that the labor market is making its recovery. The fact of the matter is that there is another reason why the unemployment rate is going down. The labor force is shrinking in size. With a smaller labor force, then the number of people with jobs is a larger percentage of a labor force with fewer people. There is more than what meets the eye with the employment situation.

Yellen’s First FOMC

Today, Janet Yellen took part in her first Federal Open Market Committee meeting as the first chairwomen of the Federal Reserve. And, just like every other meeting she emerged after to deliver the news of what the Committee agreed upon. Today, however, the news wasn’t all good. It seems that analysts and investors alike are worried after hearing what the new chairwomen had to say.

One of the announcements pertained to the short term interest rates. On the surface Yellen announced that the FOMC planned to keep on track with Bernake’s plan and keep short term interest rates artificially low well into next year. Analyst might not have been so quick to take her word, and it seems that the common belief is that the Fed is planning to allow these interest rates to rise quicker than announced. To further complicate things the analyst predict that these rate hikes will be more aggressive than originally planned.

The comments that spooked investors, and forced dropping prices in the stock market. Something that can be expected as when short term interest rates are suddenly expected to rise. However by the end of the day the market seemed to make up most of its loses from the announcement.

Another action taken at the meeting was to cut bond buying back another ten billion to $55 Billion. It is apparent that here again Yellen is keeping on course with Bernake. It doesn’t seem the stock market had an immediate reaction to this announcement, but it will be interesting to see their response in time to come. If you view the stock market prices are perceived future gains than one would expect that as Yellen continues on Bernake’s path and doesn’t change it up, the stock market will remain unaffected from the reduction in quantitative easing. In opposition you could look at the percentage by which the Fed is cutting the bond buying program.

Back when reductions started in December, the Fed was purchasing $95 Billion worth of bonds a month. When the began to taper off the quantitative easing strategy they cut back by about 10.5%. Now that they are moving from $65 Billion to $55 Billion they are cutting at a much higher rate, around 15%. If an investor were to look at the future cuts in the buy back program they could anticipate where the “wins” would be in the stock market and create a positive gain from this speculation.

Nothing to out of the normal was announced, but today was definitely a historic day for the Fed and its first official FOMC with a chairwomen.

Fed fails to indicate what labor market signal will be

The Fed announced today that it will continue its tapering program, reducing purchases of long-term Treasury bonds from $35 billion per month to $20 billion per month, and cut back on its mortgage-backed securities purchases by $5 billion as well, to $25 billion. These results came as expected, with the $10 billion monthly decrease continuing each month. The bigger news was the Fed’s announcement on whether it will start to bring rates back up as the targeted 6.5% unemployment rate is due to be met in the upcoming weeks.

On Wednesday, the Wall Street Journal reported that “the Fed dropped the reference to the 6.5% jobless rate, which officials have come to see as too limited an indicator of the labor market’s health.” The proclamation of being “too limited an indicator” tells true, as unemployment rates have sunk in some part due to discouraged workers dropping out of the work force entirely after failing to find employment. However, the Fed offered little insight on what they believed better labor market indicators to be, or when they will determine that the economy has shown enough recovery. The stock market fell after the news, on the idea that rates may be rising sooner than previously expected.

The majority of Fed officials on Wednesday predicted that rates will begin to increase within the year, with 10 of 16 expecting increases to begin in 2015. The real news of the day was the ambiguity that the Fed left in its wake. Will a 6% unemployment rate be enough to spark a rate increase, or is the unemployment rate now discredited by the Fed as a worthy indicator? What should Americans expect moving forward, and when will the recession really end? According to Fed Chairwoman Janet Yellen, a multitude of factors will tell her when the time is right.

“Ms. Yellen said her dashboard for monitoring economic progress would include
the share of workers who have been unemployed for six months or more, the share
of adults who are holding or seeking jobs and the portion of workers who hold
part-time jobs but say they would rather have full-time occupations.” – WSJ

So while the news coming out of the meetings leaves more to be desired in terms of understanding the actual state of the economy and strength of the labor market, expectations can be made moving forward. All indicators show that the tapering process will continue as planned, $10 billion less bond purchases happening each month, and depressed rates while inflation sits below its targeted level. While the new measure for the state of the labor market certainly is more indicative of its actual all-around health, the Fed left much doubt for when it will finally be ready for a rate increase.