Wednesday, March 18, 2015

Federal Reserve Opens Door to June Rate Increase

The Federal Reserve removed the assurance that it would be “patient” in raising interest rates, opening the door to a possible June increase.

“Just because we removed the word patient from the statement doesn’t mean we are going to be impatient,” stated the Chairwoman, tempering expectations of a swift rise in rates. The Fed lowered its forecast for the Federal Funds rate with the median forecast predicting rates at 0.625% at the end of 2015, down from 1.125% the previous forecast. Yellen noted that the adjustment was due to changes in the economic forecast rather than a change in the Fed’s approach to tightening monetary policy.

The current forecast suggests that a rate increase is likely to take place mid-to-late 2015. Bond market futures are currently predicting 9% odds of an increase at June’s meeting and 42% chance of an increase in September. Chairwoman Yellen stated that an interest rate increase would likely accompany a meeting with a press conference, but noted that the Fed has the ability to add a press conference to a meeting whenever necessary.

The Fed noted that although economic growth has moderated, labor market conditions have improved with strong job gains and lower unemployment. The committee stated that an increase in the federal funds rate is unlikely during the April meeting, but that the rate will increase upon further improved labor market conditions and after inflation appears to be on track for the 2% inflation target.

Read the Fed Release

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