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Up Front

Yellen’s Uncertainty Index

David Wessel

The theme of Federal Reserve Chair Janet Yellen’s press conference this week was “uncertainty”—uncertainty about what’s going to happen to interest rates, about how fast the economy will grow, about inflation.  

Just how uncertain is Yellen? Well, we counted: She used the word eight times in her hour-long Q&A with reporters. (“Certain” didn’t occur at all, according to the Fed transcript.)

In her first press conference, back in March, she used the u-word only once.

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Nothing about the economic outlook is ever certain. So why this sudden burst of “uncertainty” from the Fed chair?

It’s a message to buoyant financial markets: A little caution would be welcome. “To the extent that low levels of volatility may induce risk-taking behavior that for example entails excessive buildup in leverage or maturity extension, things that can pose risks to financial stability later on, that is a concern to me,” she said, choosing her words with extreme care. (Translation: We know that low interest rates can lead yield-hungry investors to do dumb things and take big risks that can hurt them—and the rest of us.)

Her message: Don’t be complacent. Don’t misread our guidance about interest rates. Yes, if the economy unfolds as we forecast, we’ll be raising short-term rates sometime in 2015 and keeping them lower than the historic norms for a long time. But if the economy zigs or zags in ways we don’t anticipate, we will move accordingly.

Exude a little more uncertainty, please.

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