FORTUNE — The Janet Yellen-era Fed has officially begun — with a bit of a curveball.
The markets got what it expected from the Fed in one sense — another round of $10 billion in tapering of the central bank’s “quantitative easing” bond buying program, from $65 billion per month to $55 billion per month. But it also seemed to be caught off guard by a change in the Fed’s forward guidance on when it might start to raise short-term interest rates.
The Fed eliminated the 6.5% unemployment rate threshold, below which the regulator had previously said it would consider raising short-term interest rates. In previous statements, the Fed had made it clear that this threshold was merely a guidepost and not a trigger for higher rates, but the complete elimination of that threshold confirms for market watchers that guessing when rates will eventually rise will be a very complicated exercise.
In a press conference following the release of its statement, Federal Reserve Chair Janet Yellen said that while the 6.5% threshold was an effective way to reassure markets that a hike in short-term interest rates shouldn’t be expected anytime soon, a hard and fast guidepost would be less effective as the economy continues to improve. “The purpose of the change is to provide more information, even if it’s qualitative information, on how we’ll approach the problem” of when to raise rates, Yellen said.
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So, when will the Fed start to raise short-term interest rates? To predict that, you’ll have to start looking at a number of different statistics, just like Yellen is. During the press conference, Yellen outlined several different stats that she keeps on her “dashboard,” including broader measures of unemployment like the U6 unemployment rate, the percentage of workers that are holding part-time jobs when they want full-time work, the labor force participation rate, the quit rate, and the share of unemployed workers who have been out of work for more than six months.
After being pressed on when exactly we should expect rate hikes, Yellen insisted that decision will be based on facts on the ground, but estimated it could be “six months” after the projected end of the quantitative easing program, which would mean sometime in the middle of 2015.
Despite the fact that the Fed statement and press conference struck a generally dovish tone, stock and bond markets fell following the the announcement, as yields on U.S. Treasury debt jumped despite the Fed’s assurances that it would keep rates at zero for at least another year. The market reaction may have more to do with the interest rate projections of Fed Open Market Committee Members, which are released in conjunction with the official statement.
As Jim O’Sullivan of High Frequency Economics writes in a note to clients, those estimates show that individual members expect rates in 2015 and 2016 to be a bit higher than they did last time around. “Those changes in particular make the announcement a bit less dovish — more hawkish seems a bit strong perhaps — than expected,” he writes.
