Jeff Kearns and Christopher Condon Washington
Signalling she was in no hurry to raise rates, Federal Reserve chair Janet Yellen said on Wednesday that the central bank was unlikely to move before the end of April and that borrowing costs would remain low for a “long time” after lift-off.
Yellen spoke after the Federal Open Market Committee (FOMC) announced it would be “patient” on the timing of the first rate increase since 2006, replacing a pledge to hold rates near zero for a ”considerable time”.
“The statement that the committee can be patient should be interpreted that it is unlikely to begin the normalisation process for at least the next couple of meetings,” which would take place in January and March, Yellen said.
The new guidance gives the Fed more flexibility to react to economic data as it moves toward an exit from the most accommodative policy in its 100-year history.
“The timing of the initial rise in the Fed funds target as well as the path for the target thereafter are contingent on economic conditions,” Yellen said. “Monetary policy will still be very accommodative for a long time” after rates rise.
Most officials still see the first increase taking place next year, according to quarterly forecasts released yesterday. At the same time, forecasts show central bankers expect rates to rise more slowly over the next three years than previously anticipated, even as the jobless rate falls in 2015 to a level considered full employment.
Stocks extended gains and Treasury yields were higher after the Fed’s announcement. The Standard & Poor’s 500 index jumped 2 percent, the most since 2013, to 2 012.89 as of 4pm in New York. The 10-year Treasury note yielded 2.14 percent, a gain of eight basis points.
The FOMC statement made no reference to the Russian currency crisis or other global risks that have roiled financial markets.
“US banks’ exposure to Russian residents is really quite small in terms relative to their capital,” Yellen said. “In terms of the portfolios of US residents, there are Russian securities, but they account for a very small share.” – Bloomberg