Mechanical Approach
There is “no plan to follow any type of mechanical approach to raising the federal funds rate,” she told the media after the June FOMC meeting.
Under Alan Greenspan, the Fed hiked by 0.25 percentage points at 17 consecutive sessions, from June 2004 to June 2006 - - an increase it usually described as “measured.”
But that created too much predictability, and encouraged too much risk-taking by investors, according to a now-widespread view -- one reason the Fed generally avoids the term now.
More recently, investors have wondered how long a period was “considerable time.” That’s how long the Fed, beginning in September 2012, pledged not to raise rates while it waited for the economy to heal.
Not Impatient
In December 2014 the FOMC moved on, now pledging to be “patient.” Just when Fed-watchers were beginning to figure out what that meant, the word was dropped in March 2015. Yellen’s gloss on the move: “Just because we removed the word ‘patient’ from the statement doesn’t mean we are going to be impatient.”
As for gradualism, that may simply be how the Fed sees the economy behaving. In the quarterly summaries, the Fed has to say how it sees output expanding in the coming years. Since April 2012, the term of choice has been -- you guessed it -- “gradually.”
That’s essentially what Mester told her questioner in Cleveland.
“When we say ‘gradual,’ we’re trying to express what our read is of current conditions and the outlook,” she said. “It’s going to depend on how the economy evolves.”