Yellen Is Watching These Four Indicators for Signals on When to Raise Rates

Bloomberg - In her press conference on March 18, Yellen laid out the markers for what "reasonably confident'' means. While "I don't have a mechanical answer for you,'' there are four targets that matter.

1. Labor markets need to continue to improve. "A stronger labor market with less labor market slack is one factor that would tend to, certainly for me, increase my confidence," Yellen said.

2. Core inflation - Inflation without the food and energy components needs to stabilize. "We expect inflation to remain quite low because of the depressing influence of energy price declines and the dollar,'' Yellen went on. "We will be looking at the inflation data carefully'' to discern what's happening beyond those short-term influences.

3. Wages need to break out of their slump. "We will be looking at wage growth" as a signal of inflation though "I wouldn't say either that that is a precondition to raising rates."

4. "We'll be watching inflation expectations." For one thing, "market-based measures" of expectations are too low. "If they were to move up over time, that would probably serve to increase my confidence."

The measure that looks at inflation expectations five years from now fell as low as 1.75 percent in January. A move back to 2 percent would add to confidence.