Word drop indicates Fed may raise interest rates
Print Edition
THE Federal Reserve dropped its pledge to remain “patient” on raising interest rates, signaling a possible mid-year federal funds rate hike after over six years at the zero level.
But Fed Chair Janet Yellen stressed that policy-makers see US economic growth prospects as more muted than they did just three months ago, and will step cautiously as they move out of crisis stance.
That means, as indicated by fresh forecasts from the Fed, that even if it embarks on normalizing monetary policy with a June, July or September rate increase, rates will remain at extraordinarily low levels well into 2016.
The US central bank struck 0.3 percentage points from its growth forecast for this year, to 2.3-2.7 percent, and significantly lowered its inflation outlook on Wednesday to a weak 0.6-0.8 percent.
The Federal Open Market Committee said in a fresh policy statement that economic growth had “moderated somewhat” since its January meeting, in part because American households have tailed back spending.
“Just because we removed the word patient from the statement doesn’t mean we’re going to be impatient,” Yellen said after the two-day FOMC meeting.
While the jobs market has strengthened and unemployment fallen to 5.5 percent, she noted that consumer spending has slipped, the housing sector is sluggish, inflation has declined rather than increased, salaries are flat, and the stronger dollar has damaged US exports.
The view of many Fed officials, Yellen told reporters, is that “the residual effects of the financial crisis ... are likely to continue to constrain spending and credit availability for some time.”
The Fed’s stress on caution even as it stepped closer to raising interest rates took pressure off global markets expecting a more aggressive position.
Turmoil warning
Both the International Monetary Fund and the Organization for Economic Cooperation and Development had warned this week about the turmoil that could result in the weak global economy from tightening by the Fed.
The FOMC had been widely expected to drop from the policy statement the insistence that it “can be patient” before increasing the fed funds rate.
That phrase has stood between FOMC policy-makers’ caution and firm commitment to take the step for an initial rate increase this year.
Yellen said several times that removing that phrase would signal a possible hike within two or more FOMC meetings, which would point to June at the earliest.
Reiterating that point, the FOMC virtually nixed any increase in April in its statement. But beyond that, there was no commitment.
“Let me emphasize, however, that the timing of the initial increase in the target range will depend on the committee’s assessment of incoming information,” Yellen said. “Today’s modification of our guidance should not be interpreted to mean that we have decided on the timing of that increase.”
Michael Gregory at BMO Capital Markets quipped: “This is a classic good-cop, bad-cop situation.” With wages growth still low, lower oil prices pulling down inflation, and the dollar strong, he said, “we might ourselves have to be patient before we see the inevitable liftoff of Fed policy rates.”
Chris Low of FTN Financial noted that Yellen nevertheless is conscious of the danger of tightening policy too late to contain inflation.
- About Us
- |
- Terms of Use
- |
-
RSS - |
- Privacy Policy
- |
- Contact Us
- |
- Shanghai Call Center: 962288
- |
- Tip-off hotline: 52920043
- 沪ICP证：沪ICP备05050403号-1
- |
- 互联网新闻信息服务许可证：31120180004
- |
- 网络视听许可证：0909346
- |
- 广播电视节目制作许可证：沪字第354号
- |
- 增值电信业务经营许可证：沪B2-20120012
Copyright © 1999- Shanghai Daily. All rights reserved.Preferably viewed with Internet Explorer 8 or newer browsers.
