19th March 2015
The US central bank has indicated that it could push interest rates higher sooner than perhaps some market commentators had expected.
In its latest statement on the US economy the Federal Reserve notably dropped its pledge to be “patient” before deciding to hike the cost of borrowing.
As a result economists now anticipate the Fed could increase rates by the summer, which would mark the first rise in more than six years.
However the Fed replaced its “patient” with a more vague form of forward guidance, that it will raise the fed funds target range when it has seen “further improvement in the labour market and is reasonably confident that inflation will move back to its 2% objective over the medium term”.
Paul Ashworth, chief US economist at Capital Economics said: “Not wanting to spark a Treasury sell-off, the new statement also warns explicitly that there won’t be a rate hike in April. A June lift-off isn’t set in stone, but we suspect it would take something pretty dramatic at this stage to alter the Fed’s plans.”
Markets welcomed the news with the US benchmark S&P 500 index rising 1% to 2,096.
At a press conference Fed chair Janet Yellen went to temper expectations of a swift hike. She said: “Just because we have removed the word patient from the statement does not mean we are going to be impatient.”