Given Jobs Strength, Was Fed 2014 Pledge “Foolish”?

Did the Fed get ahead of itself when it said that it plans to keep interest rates at virtually zero into late 2014? Or maybe Ben Bernanke had his fingers crossed behind his back? Job growth was much stronger than expected in January and the economy has added more than 200,000 jobs now for two months in a row. Other economic indicators, including manufacturing data, point to more robust demand in the economy.

Clearly, the Fed never set its words in stone, and the board has noted it can change course depending on conditions on the ground. But its “2014″ statement is starting to raise eyebrows.

“We believe that consensus expectations for growth are understating the rising momentum in the economy,” wrote John Ryding and Conrad DeQuadros of RDQ Economics. “These data only further underscore the foolishness of the Fed�s promise to keep rates on hold until late 2014�how can the Fed see that far into the future?”

But PIMCO CEO Mohammed El-Arian told Bloomberg Television that he expects the Fed to keep interest rates low and probably even initiate QE3. The economy still has numerous secular problems despite cyclical improvements, he argues.

“So far, the Fed has been dismissing the short-term data�They have been looking beyond the cyclical bounce, and saying that secularly the economy is still weak. What does it mean for policies, don’t expect any change in the signal that they intend to keep interest rates float at 0 or at exceptionally low levels until the end of 2014. In terms of QE3, my gut says we are likely to see it, but the question is when and how big.”