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. 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. Even so, it's yet another illustration of the perils of forward guidance. A more experienced central-bank head would have obfuscated and said something vague: policymakers generally believe it is imperative to leave themselves some discretion. 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. 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.
– 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."