Fed Opens Door Wider for Rate Hike

The Federal Reserve on Wednesday moved a step closer to hiking rates for the first time since 2006, but downgraded its economic growth and inflation projections, signaling it is in no rush to push borrowing costs to more normal levels.  The U.S. central bank removed a reference to being “patient” on rates from its policy statement, opening the door wider for a hike in the next couple of months while sounding a cautious note on the health of the economic recovery.

Fed officials also slashed their median estimate for the federal funds rate – the key overnight lending rate – to 0.625 percent for the end of 2015 from the 1.125 percent estimate in December.   The cut to the so-called “dot plot,” together with other economic concerns cited by the Fed, sent a more dovish message than investors were expecting, and pushed market bets on the central bank’s rate “lift-off” from mid-year to the fall.

“Just because we removed the word ‘patient’ from the statement doesn’t mean we’re going to be impatient,” Fed Chair Janet Yellen said in a press conference after Wednesday’s statement.  Stocks on Wall Street surged and oil prices jumped as much as 5 percent after the Fed statement. The dollar tumbled against other major currencies and the U.S. 10-year Treasury yield dipped below 2 percent for the first time since March 2.

Reuters

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