text: Reuters Federal Reserve Chair Janet Yellen talks at a news conference Wednesday following the Federal Open Market Committee meeting. 
   
   WASHINGTON (MarketWatch) — Federal Reserve Chairwoman Janet Yellen spoke for an hour at her press conference Wednesday, but the market only heard three words: “around six months.” 
   
   She was asked how long the Fed would wait after the tapering ends before it begins to raise interest rates. 
   
   Her answer: “So the language that we used in the statement is ‘considerable period.’ So I, you know, this is the kind of term it’s hard to define. But, you know, probably means something on the order of around six months, that type of thing.” 
   
   Hilsenrath: Fed tweaks rate guidance (5:51) Jon Hilsenrath joins the News Hub with analysis of the Federal Reserve's move to alter its guidance on the likely path of interest rates, putting less weight on the unemployment rate as a signpost for when rate increases will start. Photo: Getty Images. 
   
   She added lots of qualifiers to that, including the assessment of the labor market and the inflation outlook, but the markets only heard “around six months.” Markets sold off. 
   
   The taper of the Fed’s bond purchases is on course to end in October or November. Six months after that would be April or May. So Yellen said the first rate hike could come in April or May, depending on how the economy is doing. 
   
   Before this Fed meeting, the market had been expecting the first rate hike to come toward the end of 2015, perhaps in October or December. The updated forecasts provided by the Fed’s “dot plot” would point to a first rate hike in September or October of 2015, just a little faster than the market had been expecting. 
   
   Now we’ve heard from the Fed chair that the first hike could — emphasize could — come two or three meetings before that. 
   
   Listen to What a 2015 rate hike would mean to you. 
   
   Did Yellen mean to be that specific? No, the Fed has always loosely defined “considerable period” as about half a year. It’s supposed to be a little vague. She probably didn’t intend to give any hints about timing beyond what the “dot plot” said. No Fed chair is going to confidently tell markets that it’s going to raise rates in 14 months. 
   
   But now that she’s leading the Fed, the markets will react to what she said, not what she means. 
   
   Now it’s up to Yellen and her colleagues to walk this back, if they don’t like what the market heard. 
   
   Also read these MarketWatch stories: 
   
   Stocks drop after FOMC 
   
   Fed shifts criteria for rate hike and market sours ||||| Communication 
   
   Janet Yellen may have just committed the first substantial blunder of her chairmanship of the Federal Reserve. The mistake: being specific when the occasion called for generality. “The more experienced [Ben] Bernanke knew to avoid clarifying deliberately vague statement language,” Michael Feroli, chief U.S. economist at JPMorgan Chase, wrote in a client note after the financial markets reacted badly. 
   
   Investors are dying to know when the Federal Reserve will start raising its target for the federal funds rate, which has been stuck on the floor at zero percent to 0.25 percent since December 2008. The Fed has repeatedly refused to be pinned down. In its statement today, for example, the rate-setting Federal Open Market Committee (FOMC) said “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 [emphasis added].” 
   
   At her first press conference since becoming Fed chair in February, Yellen was asked what the Fed meant by “a considerable time.” The correct answer to this question is, “We weren’t specific for a reason. Go away.” Yellen, having been connected with the Fed in one capacity or another for most of the past 20 years, should have known that. Instead, she said, “You know, this is the kind of term it’s hard to define, but, you know, it probably means something on the order of around six months or that type of thing.” That was a bit quicker than markets had been expecting, so interest rates rose and stocks fell. The comment “sent equity markets into something of a tailspin,” wrote Paul Ashworth of Capital Economics. 
   
   Michael Wallace of Action Economics in Colorado called Yellen’s specificity a “gaffe.” He wrote that Yellen made “the mistake of �?taking the bait’ and providing a time reference for the purposefully ambiguous phrase.” It wasn’t the only factor in the market selloff today—new economic projections by members of the FOMC were also a factor—but it did make a difference. 
   
   It’s a fair bet that other FOMC members will be suggesting to Yellen that she stick closer to the script next time she addresses reporters. ||||| There is good reason to hope that Janet Yellen may go on to become one of the great leaders of the Federal Reserve: she’s a first-rate economist, a gifted explicator of complicated concepts, and an experienced hand at navigating Washington. (At her first appearance as Fed chief on Capitol Hill, last month, the Republican senators may not have been eating out of her hands, but they treated her with unusual deference.) In policy terms, she’s on the side of the angels: passionately committed to getting the economy growing and bringing down unemployment, particularly for the long-term jobless, who have been the biggest victims of the Great Recession and its aftermath. 
   
   On Wednesday, though, at her first press conference as chairwoman of the Fed, Yellen had an awkward time, conveying a message that she may well not have intended to, and spooking the markets. This may not be a big deal: Alan Greenspan and Ben Bernanke made similar errors in their early days and quickly recovered. But it did indicate some of the challenges Yellen faces in extricating the Fed from the emergency policy actions it has taken during the past five years. 
   
   Her first task was to explain a U-turn in the Fed’s communications strategy. In December, 2012, in an effort to keep down long-term interest rates, particularly mortgage rates, the Federal Open Market Committee, a policy-making body that Yellen heads, publicly stated that it wouldn’t even consider raising the short-term interest rate that it sets—the federal funds rate—until the unemployment rate had fallen to 6.5 per cent. At the time, the jobless rate was 7.8 per cent, and the 6.5-per-cent threshold for a possible interest-rate hike seemed a long way off. But unemployment has fallen rapidly in the past year, and the rate is now down to 6.7 per cent. The markets wanted to know what the Fed would do if it reached 6.5 per cent. 
   
   Yellen’s answer today was that it almost certainly wouldn’t do anything, but we’d have to trust the judgment of her and her colleagues on it. In place of its firm “forward guidance” regarding the 6.5-per-cent figure, the F.O.M.C. said, in a statement, that its assessment of when to start raising rates would “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 statement also said that the committee believed that it would be appropriate to maintain its rock-bottom target for the funds rate (between zero and a quarter of one per cent) for “a considerable time” after its policy of quantitative easing—printing money to buy bonds—ends, which, at the current pace of drawdown, is likely to happen in October. 
   
   This change in language wasn’t wholly unexpected. However, it caused some confusion. Like most other observers, I initially read it as a dovish document: it appeared to be designed to give Yellen and her colleagues the leeway to keep the funds rate low even well beyond the date when the unemployment rate drops below 6.5 per cent. But the bond markets reacted differently. There was a significant sell-off after the statement was released, and market interest rates rose—indicating a belief among investors that an early rise in the funds rate was more, and not less, likely. 
   
   So what, you might say: markets are always bouncing around, and they usually settle down eventually. That’s true, but it matters a great deal to the Fed how investors on Wall Street, and in other financial markets around the globe, interpret its public statements. These days, the primary way that monetary policy works is by influencing expectations about future changes in policy. If bond-market investors believe that a rise in the funds rate is likely to come earlier than they had been expecting, they will be apt to sell now. That can cause an immediate tightening in monetary conditions, which can hit the housing market and other interest-sensitive sectors of the economy. Last summer, Bernanke inadvertently caused a substantial rise in mortgage rates by appearing to suggest that the Fed was already intent on drawing down its asset purchases. 
   
   During her press conference, Yellen got the opportunity to explain what the statement really meant, but instead of clarifying the situation she made it worse. She started out well enough, stressing that the change in wording didn’t mean that the policy stance had changed in any way. Issuing forward guidance had served a useful purpose, she insisted. But, as the unemployment rate had fallen faster than expected, it had created uncertainty about what would happen when the threshold was reached. That’s why she and her colleagues had decided to drop the 6.5-per-cent figure and replace it with the “qualitative guidance” that the Fed would consider a much wider range of metrics than simply the unemployment rate. Yellen also pointed to the bit in the statement about keeping rates constant for “a considerable time” after the policy of quantitative easing ends. 
   
   That’s where she got into trouble. Ann Saphir, a Reuters reporter, bluntly asked her how long the gap would be between the end of the Fed’s asset purchases and the first interest-rate hike. A more experienced central-bank head would have obfuscated and said something vague: policymakers generally believe it is imperative to leave themselves some discretion. But Yellen again referred to the phrase “considerable period,” saying, “It’s hard to define but, you know, probably means something on the order of around six months.” 
   
   To this viewer, it sounded like an offhand comment, but that wasn’t how the markets interpreted it. Six months from October is next April—about a year away. Wall Street hadn’t been expecting a rate change until the second half of 2015 at the earliest. Yellen, inadvertently or not, had changed the timetable—or so it seemed. The stock market, which had recovered a bit after the release of the Fed statement, immediately gapped down. The Dow, which was down about forty points, fell another hundred and fifty points. In the bond markets and the futures markets, prices shifted sharply to reflect the increased likelihood of an interest-rate rise in the spring of next year. 
   
   Yellen, although she couldn’t have known of the market reaction, appeared to realize that she had erred. Any decision to raise rates, she stressed, would depend “on what conditions are like” at the time. She and her colleagues would look at how fast the labor market was moving toward full employment, and whether the inflation rate, which has been dangerously low the past couple of years, was moving back toward the Fed’s two-per-cent target. If inflation was persistently running below the target, that would be a good reason to keep the federal funds rate where it was, she added. 
   
   These were excellent points, and they added to my impression that Yellen has no intention of raising interest rates until she is entirely convinced that the economy is finally growing normally, or something very close to it. Unfortunately, though, the communications error had been made. On the newswires and on Wall Street, the message was that the Fed is getting ready to start raising rates, not immediately, but within a year or so. Traders had already seized upon a set of economic projections released alongside the F.O.M.C. statement, which appeared to indicate that some members of the committee had slightly raised their interest-rate forecasts since their previous meeting. Yellen, in her answers, tried to downplay these projections, saying that people should focus on the statement itself. But it all added to the selling pressure in the markets. 
   
   Once again, this is not the end of the world, and Yellen didn’t do anything wrong. To the contrary, she delivered a cogent and persuasive explanation of why the Fed’s ultra-accommodative interest-rate polices need to be maintained for a considerable time to come: inflation is too low, and there’s lots of slack left in the labor market. But she allowed her message to be garbled, which is something she’ll have to address going forward. 
   
   With the gradual pickup in the economy and the drawing down of quantitative easing, Wall Street’s attention is beginning to focus on the eventual normalization of interest-rate policy, and what impact that will have on the markets. An inflection point in policy is a tricky time to be Fed chairman. There’s always a lot of uncertainty—and provisional statements, which are heavily qualified, can be seized upon as firm expressions of policy. Bernanke had his troubles with this last year; it looks like Yellen may experience some of the same problems. Welcome to the hot seat, Madame Chair. 
   
   Photograph by Andrew Harrer/Bloomberg/Getty. ||||| It wasn't the debut Janet Yellen had hoped for. During her first press conference as Federal Reserve chairman, she said something she almost certainly hadn't meant to, and the markets took it badly. The misunderstanding was more their fault than hers. Even so, it's yet another illustration of the perils of forward guidance. 
   
   Yellen was asked how long the Fed expected to wait before starting to raise interest rates once it has brought quantitative easing to an end: What did the official formula of "a considerable period" mean? She said, "It's hard to define but, you know, it probably means something on the order of around six months or that type of thing." 
   
   The markets seized on this as actionable information. At the present rate of tapering, QE will end in October. Add six months and you get to next spring. Previously markets had expected rates to start rising a few months later than that. So Yellen was judged to be tightening policy, stock prices fell and bond yields rose. 
   
   That was a remarkably dumb conclusion for investors to draw from a press conference that had otherwise been at pains to say that the expected policy track was unchanged. Aside from the six months comment, Yellen gave no indication whatever that the Fed intended to tighten policy, relative to what the markets were expecting. 
   
   What she should have said when asked what "a considerable period" meant was, "It's hard to be more precise; it all depends on what happens." After all, the Fed has explicitly moved away from attaching dates to information about its policy intentions, preferring to say that policy will be guided by conditions. The length of the considerable period will depend on conditions. Enough said. 
   
   The fallacy about forward guidance that repeatedly tripped up Ben Bernanke, Yellen's predecessor, and caused her to stumble at her first outing is the idea that more information -- more words, more numbers, whatever -- must be good. No. 
   
   It's valuable to be told that the Fed will keep interest rates very low while there is still some slack in the labor market, inflation is suppressed, and market expectations of inflation are well-anchored. Yellen said all that. It's also valuable to be told that the Fed will consider a range of indicators in judging labor market conditions -- as opposed to relying solely on a numerical threshold for the unemployment rate (which the Fed has now rightly dropped from its guidance). She said that too. But since the Fed doesn't have a fixed formula for labor market slack -- that's a judgment call -- there's really nothing more to be said. 
   
   Nothing useful, I mean. Investors always want more information, but they're not always good at sifting useful information from noise. The Fed could help them by recognizing that sometimes less is more. 
   
   (Clive Crook is a member of the Bloomberg View editorial board. Follow him on Twitter @clive_crook.) 
   
   Tobin Harshaw at tharshaw@bloomberg.net. 
   
   
   
   To contact the writer of this article: Clive Crook at ccrook5@bloomberg.net. 
   
   To contact the editor responsible for this article: Tobin Harshaw at tharshaw@bloomberg.net.
target: – Janet Yellen is getting a lot of grief over her first news conference as leader of the Federal Reserve for, of all things, speaking too clearly. As Rex Nutting at MarketWatch observes, Yellen spoke for an hour yesterday, "but the market only heard three words: 'around six months.'" Those words came when Yellen was asked when the Fed might start raising interest rates once its tapering strategy ended. The official Fed statement on the matter was predictably vague, but Yellen wasn't: “You know, this is the kind of term it’s hard to define, but, you know, it probably means something on the order of around six months or that type of thing.” The markets interpreted that to mean interest rates would go up sooner than expected and immediately tanked. "A more experienced central-bank head would have obfuscated and said something vague," writes John Cassidy at the New Yorker. He calls Yellen's debut "awkward," but notes that Ben Bernanke and Alan Greenspan got similarly tripped up in their early days. Yellen wasn't trying to change policy, and investors drew a "remarkably dumb conclusion" in thinking otherwise, writes Clive Crook at Bloomberg. Still, Yellen needs to be careful in what she says. "Investors always want more information, but they're not always good at sifting useful information from noise," he writes. "The Fed could help them by recognizing that sometimes less is more." Adds Peter Coy at BusinessWeek, referring to the Fed's rate-setting committee: "It’s a fair bet that other FOMC members will be suggesting to Yellen that she stick closer to the script next time she addresses reporters."