Date
26 September 2017
US employers added the largest number of workers in nearly three years last month, which could bring the Fed closer to raising interest rates. Photo: Reuters
US employers added the largest number of workers in nearly three years last month, which could bring the Fed closer to raising interest rates. Photo: Reuters

Fed signals rate hike by mid-2015 but says it can be patient

The US Federal Reserve signaled that it expects to tighten monetary policy by the middle of 2015 as it dropped its forecast that it will keep interest rates low for a “considerable time”, the Financial Times reported.

But the rate-setting Federal Open Market Committee said it can be “patient” in judging when to start raising rates.

The new wording is designed to reassure markets that rate rises are not imminent, the FT said.

The S&P 500 climbed 1.8 percent to 2007.58.

By leaving out the words “considerable time”, the Fed shows it is confident in strong US growth and wants to prepare financial markets for tighter monetary policy next year, the newspaper said.

In a statement passed by seven votes to three, the FOMC said the new guidance was consistent with the old, suggesting the Fed is looking at a first rate increase in June.

But instead of expecting interest rates of between 1.25 percent and 1.5 percent by the end of next year, the FOMC now forecasts them to be between 1 percent and 1.25 per cent. That suggests four quarter-point rate rises next year instead of five.

Instead of rates at 2.75 percent to 3 percent by the end of 2016, the Fed now expects a rate of 2.5 per cent.

The FOMC now expects an unemployment rate of 5.25 percent by the end of 2015, instead of 5.5 percent. In the same year, it expects core inflation of 1.3 percent, instead of 1.75 percent.

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