Federal Reserve Vice Chairman Stanley Fischer is being coy. He said on Tuesday that the central bank is moving close to signaling the end of zero rates, but he declined to speculate on timing.
Of course by talking about an impending bank notice for a rate hike, Mr. Fischer is signaling the same.
"If the labor market continues to strengthen, and if we see some signs of inflation beginning to increase, then the natural thing is to get the interest rates up. And we call it normalization", said Mr. Fischer at the Wall Street Journal CEO annual meeting.
The dollar responded to Mr. Fischer's comments by rising to its best level against the euro in a week and its highest versus the yen in over seven years.
The Federal Reserve has kept it Fed Funds target rate between zero and 0.25 percent since the end of 2008.
The bank ended the quantitative easing program it had used to drive interest rates to historic lows for almost two years just in October. The FOMC has deployed the term "a considerable time" in its policy statements to characterize the continued need for accommodative monetary policy and, no doubt to thwart the rise in interest rates that might follow its removal.
Ending the bond purchase program was a vote of confidence in the economy by the Fed, but that does not mean the bank's policy makers would be comfortable with a rapid increase in market rates.
Bond traders should remember last year's September FOMC when the governors completely wrong-footed the markets by declining to begin the purchase taper when the Fed's own rhetoric had created the expectation in the first place. They then reversed themselves at the next meeting in December and began the reduction.
Credit markets viewed Mr Fischer's remarks with equanimity. The 10-year yield gained three basis points to 2.27 percent, remaining near its 18 month low.
If Mr. Fischer is being coy, it is a pointed way of reminding the markets not to get ahead of what the Fed wants.
Chief Market Strategist
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