What is in Fed officials’ control is what they do today and tomorrow and in their policy meeting Sept. 16 and 17. So by deciding to raise rates then (or deciding not to), they are sending a more powerful signal than any speech or written statement that they believe it is time to start winding down the era of easy money.
The thing is, Ms. Yellen and her colleagues know this, and that comments like those she made Wednesday won’t do much to change it. The best they can do is try to manage expectations so that people don’t assume that a quarter-percentage point rise in the Fed’s interest rate target in September automatically translates to much higher rates in a year or two.
In other words, Ms. Yellen may be an economist, but she is well aware that her tools for managing the economy work via financial markets. So how bond traders interpret the Fed’s words and actions matter a great deal.