Business
On Wednesday the Fed issued a statement without the word “patient” preceding its outlook on raising interest rates. This was a step closer to a much anticipated first rate hike since 2006, writes Reuters, although markets bet on a September hike after it downgraded the expected pace of growth and inflation. Stock markets rallied after the Fed statement, while the U.S. 10-year Treasury yield dipped below 2 percent for the first time since March 2 and the euro rose against the dollar on the more dovish forecasts that appeared to argue against a June move. "This was largely what was expected, though some may have been fearing a more hawkish Fed, and that explains the rally we're seeing right now, that it didn't state a precise time for raising rates," said John Carey, portfolio manager at Pioneer Investment Management in Boston.
The statement ruled out a rate increase at the Fed's next meeting in April, putting the focus on June for the first rate hike in nearly a decade, notes the LA Times. But Fed Chair Janet L. Yellen said the central bank still was in no hurry. "Just because we removed the word 'patient' doesn't mean we're going to be impatient" about starting to normalize rates, she said at a news conference. The Fed has kept its main short-term interest rate near zero since December 2008 to boost the economy. A rate hike would have a broad influence on interest rates, raising the borrowing costs for businesses as well as for consumers who have credit cards and mortgages. But it also would give savers a better return on their deposits.
U.S. central bank policymakers met for a two-day meeting Tuesday and Wednesday, discussing whether tightening monetary policy too soon could damage the economy and dampen the prospects for maximum employment and the targeted 2 percent inflation, according to the International Business Times. But the statement suggests the Fed still expects to raise rates in mid-2015. Yellen expects a strengthening U.S. dollar to weigh on exports and will have a "notable drag on outlook.”
The Federal Open Market Committee expects the U.S. unemployment rate to fall between 5 percent to 5.2 percent in 2015, down from its previous estimate of 5.2 to 5.3 percent following the Fed’s December meeting. Inflation is forecast to come in between 1.3 to 1.4, also below previous forecasts. Meanwhile, annual U.S. gross domestic product in 2015 is expected to be between 2.3 percent to 2.7 percent, down sharply from the central bank's estimate of 2.6 percent to 3 percent in December.
