US Federal Reserve

December 18, 2014 – The US Federal Reserve made no changes to its monetary policy, saying it can remain “patient” before moving to raise interest rates and normalising its easy-money stance.

In a policy statement at the end of a two-day meeting, the Fed left in place expectations that it would begin raising interest rates only in the middle of 2015, downplaying thoughts that it might come earlier than that because of the strength of the US economy.

The Fed left its key interest rate, the federal funds rate, at the 0-0.25 per cent level, where it has been for six years to help the US emerge from deep recession.

It modestly upgraded projections for the economy, seeing unemployment falling next year to as low as 5.2 per cent and inflation staying between 1.0 per cent and 1.6 per cent. Its forecast for growth in 2015 stayed at 2.6-3.0 per cent, after an upgraded 2.3-2.4 per cent this year.

But, against expectations, the Fed’s policy arm stuck to its former plan to begin normalisation “a considerable time” after the end of massive asset purchases, or quantitative-easing stimulus. The Federal Open Market Committee suggested that, if needed, it could wait until beyond mid-2015 to raise rates.

According to the new projections, Fed officials expect a pickup in interest rates to begin later than they forecast in September. “Based on its current assessment, the committee judges that it can be patient in beginning to normalise the stance of monetary policy,” the FOMC said in the statement.

Janet Yellen, the Fed chair, stressed after the meeting that the mention of patience was not a change in policy. “This new language does not represent a change in our policy intentions and is fully consistent with our previous guidance, which stated that it likely will be appropriate to maintain the current starting range for the federal funds rate for a considerable time after the end of our asset-purchase programme,” she said.

“But with that programme having ended in October and the economy continuing to make progress toward our objectives, the committee judged that some modifications for guidance is appropriate at this time. Employment is rising at a healthy rate and the US economy is strengthening,” Yellen said, while noting: “There is room for further improvement.”

Yellen said the Fed was unlikely to raise interest rates within the next couple of meetings, in January and in March, but that such a move could come at any time. Fed officials believe inflation will eventually rise toward the central bank’s goal of 2.0 per cent in 2016, even though falling oil prices are currently holding prices well below that level.

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