The Federal Reserve's vow to keep interest rates near zero for a "considerable time" is likely to remain in place for now, with the U.S. central bank set to take a slow and steady approach to its first rate rise in a decade.The pledge will be up for debate again when policymakers meet next week, with a strong jobs report bolstering the case of officials who want to remove it.
But others feel it still has some shelf life, and even when officials drop it, they will almost certainly insert a placeholder to assure financial markets any rate hike is still a ways off.
"I think 'considerable time' captures about as best you can with two words ... the appropriate time for liftoff," San Francisco Fed President John Williams told Market News International on Monday, adding that it's still a "reasonable guess" the Fed will begin raising rates in mid-2015.
Atlanta Federal Reserve Bank President Dennis Lockhart, like Williams a policy centrist, agreed. "For my purposes I am not in a rush to drop it," he said after a speech in Atlanta on Monday.
In October, the Fed restated the pledge, but also added in its post-meeting statement that a rate hike would come sooner if the economic data was strong, and later if it wasn't.
JPMorgan economist Michael Feroli said in a research note last month that it made sense for the Fed to keep the phrase "now that it has been 'neutered' by the addition of the sentence that indicates faster progress would bring earlier rate hikes, and slower progress would bring later rate hikes."
Some economists, however, see a strong case for the phrase to be dropped next week. Jan Hatzius of Goldman Sachs has said it would be "awkward" to wait until the Fed's next meeting in January because Fed Chair Janet Yellen is not currently scheduled to hold a news conference then. She is set to speak with reporters next week.
Once the language is dropped, a review of policy-setting history suggests the central bank will guide investors to an eventual rate hike through a series of incremental verbal steps to avoid roiling markets.
Replacing the reference to "considerable time" with a pledge to be "patient" on raising rates, for instance, could help markets get used to the idea of an eventual policy tightening.
That's exactly what the Fed did the last time it was approaching a rate-hiking cycle in late 2003.
In December of that year, it signaled it was getting closer to tightening monetary policy by saying it no longer viewed a fall in inflation to be the main risk but rather viewed risks to inflation as balanced.
At the next meeting, it jettisoned its "considerable period" pledge and said it could be "patient" in removing stimulus, language it kept until May when it dumped patience and said rate hikes would likely be "measured." At the next meeting in June, it raised rates by a quarter point.
With that history as a guide, dropping their current vow next week could suggest a move as early as April, something officials who have repeatedly pointed at mid-2015 would likely be loath to do.
Rate-futures traders are currently betting the first hike will come in June 2015.
Join the Conversation