For almost six years it has been a matter of when, not if, the Federal Reserve will raise interest rates. For the better part of half a decade, the interest rate the central bank most directly controls has sat close to 0. When the rate is changed, it has only one direction to go: up. The mystery is when.
Don't expect it Wednesday when the committee wraps up two days of meetings focused on monetary policy. But there may be a substantial omission from the group's public statement, signaling time is approaching when it will act. The Federal Reserve first promised to keep its target interest rate near 0 in March 2009 for "an extended period of time." That evolved in December 2012 to a pledge of sticking to 0 for "a considerable time." That's the phrase that may be dropped from Wednesday's statement. This is the open-mouth strategy of the Fed's Open Market Committee.
Investors should not be surprised when the Fed eventually acts ... and it
will. The guess work is how the market will react. From the central bank's point of view, it must have confidence the economy is strong enough to no longer need all of the extraordinary measures it has deployed since the Great Recession. A stronger economy ought to be positive for stock investors. But investment markets usually are not so nuanced. Traders may take the Fed's confidence as a sign of concern with future inflation. Or worries of over-valued markets. Or anxiety regarding higher borrowing costs for companies and consumers.
The Federal Reserve will have to make considerable effort to ease concerns that "a considerable time" has come and gone, but the economic expansion has plenty of time to go.
Tom Hudson, financial journalist, hosts "The Sunshine Economy" on WLRN-FM in Miami, where he is the vice president of news. He is the former co-anchor and managing editor of "Nightly Business Report" on public television. Follow him on Twitter HudsonsView.