• ‘Patient’ US Fed keeps rate flat

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    WASHINGTON, D.C.: The US Federal Reserve made no changes to its monetary policy on Wednesday (Thursday in Manila), saying it can remain “patient” before moving to raise interest rates and normalizing its easy-money stance.

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    In a policy statement at the end of a two-day meeting, the Fed left in place expectations that it would begin raising interest rates only in the middle of 2015.

    And it downplayed market speculation that a hike might come earlier than that because of the strength of the US economy.

    The Fed left the range of its key interest rate, the federal funds rate, at between zero and 0.25 percent, where it has been for six years to help the US emerge from deep recession.

    It modestly upgraded its projections for the economy, forecasting that unemployment would fall next year to as low as 5.2 percent and inflation staying between 1.0 and 1.6 percent.

    Its forecast for growth in 2015 stayed at 2.6-3.0 percent, after an upgraded 2.3-2.4 percent this year.

    But, against expectations, the Fed’s policy arm stuck to its former plan to begin normalization “a considerable time” after the end of massive asset purchases, or quantitative-easing stimulus.

    The Federal Open Market Committee (FOMC) suggested that, if needed, it could wait until beyond mid-2015 to raise rates.

    According to the new projections, Fed officials expect a pickup in interest rates to begin later than they forecast in September.

    “Based on its current assessment, the committee judges that it can be patient in beginning to normalize the stance of monetary policy,” the FOMC said in the statement.

    Janet Yellen, the Fed chair, stressed after the meeting that the mention of patience was not a change in policy.

    “This new language does not represent a change in our policy intentions and is fully consistent with our previous guidance, which stated that it likely will be appropriate to maintain the current starting range for the federal funds rate for a considerable time after the end of our asset-purchase program,” she said.

    “But with that program having ended in October and the economy continuing to make progress toward our objectives, the committee judged that some modifications for guidance is appropriate at this time.”

    “Employment is rising at a healthy rate and the US economy is strengthening,” Yellen said, while noting: “There is room for further improvement.”

    Yellen said the Fed was unlikely to raise interest rates within the next couple of meetings, in January and in March, but that such a move could come at any time.

    Fed officials believe inflation will eventually rise toward the central bank’s goal of 2.0 percent in 2016, even though falling oil prices are currently holding prices well below that level.

    Yellen said the dramatic decline in global oil prices was good for the US economy, a net importer of oil, as consumers gain extra dollars to boost spending.

    She likened the price drop for consumers to “a tax cut that boosts their spending power.”

    Russia, on the other hand, “has been hit very hard by the decline in oil prices” and the plunging ruble, and Fed officials are watching for potential spill overs to the US economy, she said.

    But trade and financial linkages with Russia are “actually relatively small.”

    Some analysts said the language shift was only marginal, in terms of projecting when the Fed will begin hiking the fed funds rate.

    “The ‘patient’ wording is reminiscent of the change in language in 2004—five months before tightening began,” noted Jim O’Sullivan, chief US economist at High Frequency Economics.

    “With an expected funds rate of over one percent by year-end, officials are implicitly suggesting a first move by around mid-year.”

    Wall Street stocks accelerated their gains after the Fed announcement and Yellen’s press conference.

    The Dow Jones Industrial Average shot up 288.00 points (1.69 percent) to finish at 17,356.87.

    The broad-based S&P 500 soared 40.15 (2.04 percent) to 2,012.89, roughly doubling its gains in the final two hours of trade and scoring its best one-day increase of the year.

    The tech-rich Nasdaq Composite Index advanced 96.48 (2.12 percent) to 4,644.31.

    AFP

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