Janet Yellen sounded "hawkish" -- more inclined to raise rates and avoid inflation -- in her first press appearance as chairwoman of the Federal Reserve Wednesday. Or, at least, that was what investors took away from her comments.
Stock markets fell after the Fed released its statement of monetary policy, and then fell again during the press conference, when Yellen suggested that the central bank would raise short-term interest rates, at zero percent for the past five years, "on the order of around six months" after it has finished tapering its asset purchases.
That would put the timing of the first rate increase around March or April 2015, based on Yellen's earlier statement that the Fed's bond purchases, which it has been tapering by $10 billion at each of its last three meetings, would be reduced to zero by this fall.
That's significantly earlier than the Fed had previously led investors to believe. Before Wednesday's meeting, short-term rates were expected to be 0.5 percent (up from the current 0-0.25 percent target) in June of next year and still below 1 percent by the end of the year, as implied by Eurodollar Futures spreads.
Following the press conference, however, the same market suggested that the first rate would come around March, and that rates would eclipse 1 percent before the end of the year.
The S&P 500 fell by 15 points immediately after Yellen's comments about the timing of the first rate increase, before recovering somewhat to finish down six-tenths of a percentage point for the day. Yields on U.S. 10-year Treasury securities rose slightly, also suggesting that the Fed had indicated a tightening of policy.
Yellen did caution that the Fed's decision to raise rates "depends what conditions are like. We’d need to see where the labor market is, how close are we to our full employment goal." Yet the statement seemed to set off a significant market reaction.
It was not clear that Yellen intended to suggest that the timeline for interest rate hikes is shorter than previously thought. It is possible that she simply misspoke.
In her other comments during the press conference, Yellen avoided other clearly hawkish statements. And she emphasized that the views of the Fed's monetary policy committee haven't changed significantly from January or December, when Ben Bernanke was still chairman.