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Fed gives firm signal interest rates to rise in 2015
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THE Federal Reserve offered a strong signal that it was on track to raise interest rates next year, altering a pledge to keep rates near zero for a “considerable time” in a show of confidence in the US economy.
Closing out a two-day meeting against a backdrop of solid domestic growth but trouble overseas, the Fed said on Wednesday that it would take a “patient” approach in deciding when to raise borrowing costs.
Fed Chair Janet Yellen told a news conference that “patient” meant the policy-setting Federal Open Market Committee was unlikely to hike rates for “at least a couple of meetings,” meaning April 2015 at the earliest.
After some initial volatility, futures markets continued to point to a rate rise in September, while 13 of 19 big Wall Street firms polled by Reuters said they expected an increase by June, in line with results from a November survey.
The central bank has held benchmark overnight rates near zero since December 2008.
“Based on its current assessment, the committee judges that it can be patient in beginning to normalize the stance of monetary policy,” the Fed said. Significantly, it said the statement was “consistent” with its prior guidance that it would wait a “considerable time” before hiking rates.
Eric Green, an analyst with TD Securities in New York, said Yellen’s definition of “patient” was “less dovish than a reading of the statement would suggest.”
“In effect, it is open season after the March FOMC meeting,” he said.
Yellen told reporters that even with a sharp drop in energy costs, the Fed felt confident that inflation would eventually turn higher and approach the central bank’s 2 percent target, and she suggested officials would feel comfortable raising rates as long as other economic signals stayed strong and hopes of future inflation held firm.
“By the time of liftoff, participants expect to see some further decline in the unemployment rate and additional improvement in labor market conditions,” Yellen said.
After a week of turbulence in global financial markets, the Fed looked firmly beyond economic difficulties in the eurozone, Japan and Russia and offered a mostly upbeat assessment of the US economy’s prospects.
Updated quarterly projections, presented as ranges that exclude the three highest and lowest individual forecasts, showed policy-makers continue to expect the US economy to grow between 2.6 percent and 3 percent next year.
They foresee the jobless rate, now at a six-year low of 5.8 percent, falling to an average of between 5.2 percent and 5.3 percent toward the end of next year, a bit lower than in their previous forecasts in September and in line with what they think is in keeping with full employment.
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