Federal Reserve maintains reference to considerable time
Updated : 20:42
The Federal Open Market Committee (FOMC) continues to believe that it “likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time” after the asset purchase programme ends.
Presumably traders were most fixated on whether the US central bank would maintain the above phrase. Its omission might provoke an undue tightening in financial conditions, some believed.
Nevertheless, now 14 officials think that the central bank will first raise rates in this policy cycle next year, up from the 12 who expected that to be the case last September.
One member of the Federal Open Market Committee (FOMC) continues to believe that the Fed funds rate should rise this same year, according to the Summary of Economic Projections (SEP).
The result of the Fed´s revisions to its SEP, which were published alongside its statement, was the perceptible move higher in the median forecast for interest rate rises across the entire forecast horizon, according to Dr.Harm Bandholz, chief US economist at UniCredit Research.
Also of interest, on this ocassion two members of the FOMC dissented from the wording of the Fed statement, not just one.
As of 20:37 the S&P 500 was edging higher by 0.35% to the 2,006 point level, near its post-meeting high and following an initial dip into the red on the heels of the release of the aforementioned statement.
10-year US Treasury yields slipped by one basis point to 2.58%.
Follow live transcript of Fed chair Janet Yellen´s testimony here
In his research note to clients sent after Fed chair Janet Yellen´s press conference Dr.Bandholz explained that: "Barring any major downside surprises on the data front, the Fed seems to be on track to start rising the funds rate in the middle of next year. We see the first 25bp hike in June, followed by two more steps in September and December. After a cautious start of the normalization, with hikes at every other meeting, the Fed will likely ramp up the pace of the tightening in 2016, bringing its target rate to 3% by the end of that year."
Dr.Bandholz believes that verbal preparations by Yellen in the run-up to the October FOMC meeting - when he believes the phrase "for a considerable time" will be updated - will allow markets to avoid a "taper tantrum" (sharp reactions in the prices of financial assets).
The Fed´s macroeconomic forecasts for 2015 and 2016 were left largely unchanged, Dr.Bandholz added.