The Federal Reserve is signaling that it needs to see further improvement in the job market and higher inflation before it raises interest rates from record lows.
At the same time, the Fed has at least opened the door to a rate increase later this year by no longer saying it will be “patient” in starting to raise its benchmark rate.
The statement appeared to catch investors by surprise in suggesting that a rate increase may be further off than many had assumed. Stock prices rose and bond yields fell in the minutes after the news.
The Fed has kept its key short-term rate near zero since late 2008 to bolster the economy after a devastating financial crisis and recession. A rate hike would push up consumer and business rates.
Since December, the Fed had said it could be “patient” in beginning to raise its benchmark rate from a record low near zero. Most analysts said that dropping “patient” from its statement would signal that the Fed was moving toward a rate increase, perhaps as soon as June, given the strengthening job market. A rate hike would ripple through the economy and could slow borrowing and possibly squeeze stocks and bonds.
Other economists had said that even if the Fed dropped “patient,” any rate increase would reflect the latest data and that the Fed would remain flexible. Key sectors of the economy have been less than robust of late, and inflation remains far below the Fed’s target rate. Some analysts foresee no rate hike before September. A few predict none before year’s end at the earliest.
In testimony to Congress last month, Yellen cautioned that even when “patient” is dropped, it won’t necessarily signal an imminent rate hike — only that the Fed will think the economy has improved enough for it to consider a rate increase on a “meeting-by-meeting basis.”
Copyright 2015 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
