The Federal Reserve Bank on Wednesday inched closer towards raising the key rates for the first time since 2006, but took the decision to downgrade its economic growth as well as inflation projections, indicating that it is in no hurry to push borrowing costs to more normal levels.
In its official statement after the conclusion of the two-day crucial meet, the US central bank said that it has omitted a reference to being “patient” on interest rates from its policy statement. With the development, the Fed has now opened the door much wider for an increase in rates in the couple of months. But it has also adopted a cautious tone and signaled about the health of the recovering economy.
The Federal Reserve lowered its median estimate for the rate of federal funds, which is the main overnight lending rate, to 0.625 percent for this year end from December’s estimate of 1.125 percent.
Addressing a press conference after Wednesday’s statement, Fed Chair Janet Yellen said, “Just because we removed the word ‘patient’ from the statement doesn’t mean we’re going to be impatient.”
The slashing of the rates to the so-called “dot plot” along with other economic worries that were cited by the Federal Reserve sent a more dovish message to the market and the investors than they were actually expecting. The dovish statement further pushed market bets on the Fed’s rate “lift-off” from mid-year to the fall.
The US stocks as well as the oil prices jumped as much as five percent following the crucial policy statement by the Federal Reserve on Wednesday. The US dollar plunged against a basket of other major currencies, while the US 10-year Treasury yield dropped below two percent for the first time since March 2 this year.
In its quarterly economic projections summary, the US central bank slashed its inflation outlook for this year and lowered the expected economic growth of the country. The policy statement repeatedly voiced its concern that the measures for inflation were depressing and running below expectations, thanks to the falling energy prices.
The Fed noted that an increase in rates is “unlikely” when the bank meets in April, maintaining that the changes in its rate guidance didn’t mean it has finally decided on the perfect timings for a rate hike.
Yellen, however, told reporters that a possible raise in key rates may be expected in June.
“The committee anticipates that it will be appropriate to increase the target range for the federal funds rate when it has seen further improvement in the US labour market and is reasonably confident that inflation will move back to its two percent objective over the medium-term,” the Fed officials said in a statement.
The Fed had earlier said that it would remain patient in considering when to bring back the monetary policy to normal.
The US central bank has maintained the interest rates at near zero since Yellen took over as its head in February 2014.