16 January 2019
Janet Yellen said she could not rule out a rate increase in June. Photo: Bloomberg
Janet Yellen said she could not rule out a rate increase in June. Photo: Bloomberg

Fed moves closer to rate hike, lowers growth outlook

The US Federal Reserve moved a step closer Wednesday to raising interest rates for the first time since 2006.

But it lowered its projections for economic growth and inflation, signaling it is in no rush to push borrowing costs to more normal levels, Reuters reported.

The US central bank removed a reference to being “patient” on rates from its policy statement, opening the door wider for a hike in the next few 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 this year from the 1.125 percent it estimated in December.

That reduction, together with other economic concerns cited by the Fed, sent a more dovish message than investors were expecting and pushed market bets on the timing of the central bank’s rate increase from mid-year to autumn.

“Just because we removed the word ‘patient’ from the statement doesn’t mean we’re going to be impatient,” Fed chairwoman Janet Yellen said in a news 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 US 10-year Treasury yield dipped below 2 percent for the first time since March 2.

In its quarterly summary of economic projections, the Fed cut its inflation outlook for 2015 and reduced expected US economic growth.

The Fed said a rate increase remains “unlikely” at its April meeting and that the change in guidance did not mean it has decided on the timing for a rate hike.

Yellen told reporters a move in June could not be ruled out.

“The committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term,” the Fed said.

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