Fed: Interest Rates Could Rise As Early As May 2015

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The Federal Reserve appears to be on track to raise its benchmark interest rate next year. After a two-day meeting the Fed released a statement that at first confused some analysts with its verbal gymnastics, but in a news conference Fed Chair Janet Yellen suggested interest rates could rise as early as May of next year. NPR's John Ydstie reports.

JOHN YDSTIE, BYLINE: Analysts had been expecting the Fed to signal it would hike rates around the middle of next year by removing from their statement language suggesting they would hold rates near zero for, quote, "a considerable time." But when the meeting ended, the phrase remained in the statement and Fed officials had also added that they would be, quote, "patient." The change seemed to do little to clarify the Fed's timing. At her news conference, Yellen tried again.

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JANET YELLEN: The statement that the committee can be patient should be interpreted as meaning that it is unlikely to begin the normalization process for at least the next couple of meetings.

YDSTIE: But reporters wanted to pin Yellen down further.

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UNIDENTIFIED MAN: Does a couple mean two?

YELLEN: Well, I believe the dictionary probably says a couple means two, so a couple means two.

YDSTIE: Since Fed policymakers meet every six weeks, that suggests that no rate hike is likely in the first 12 weeks of the year, but by May it could happen. Yellen offered a further refinement that pointed to a rate hike next summer, which is the timing predicted by most Fed watchers.

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YELLEN: A number of committee participants have indicated that in their view, conditions could be appropriate by the middle of next year.

YDSTIE: Yellen repeated that there is no preset time for the first rate hike and that it would be dependent on the strength of the economy. The Fed made clear in its statement that it expects continued moderate growth in the economy and continued improvement in the job market. Yellen also said while inflation might be lower than the Fed's target because of the big drop in oil prices, Fed officials were confident it would return to their target range. She also said that on the whole, lower oil prices are a plus for the U.S. economy.

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YELLEN: It's something that's certainly good for families, for households. It's putting more money in their pockets, having to spend less on gas and energy. And so in that sense, it's like a tax cut that boosts their spending power.

YDSTIE: Yellen said obviously the drop in oil prices is not good for countries like Russia, but she said its economic problems shouldn't hurt the U.S.

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YELLEN: Russia accounts for less than 1 percent of U.S. trade volume and U.S. banks' exposure to Russian residents is really quite small.

YDSTIE: Financial markets liked what they heard from the Fed. The S and P financial index rose 2 percent.

John Ydstie, NPR News, Washington. Transcript provided by NPR, Copyright NPR.