Federal Open Market Committee members announced Wednesday they “can be patient in beginning to normalize the stance of monetary policy,” said a statement at the end of a two-day meeting.
When it does start removing monetary accommodation, which has kept the federal funds rate in the zero to 0.25% target range, “it will take a balanced approach,” the statement said, noting that economic conditions “may, for some time, warrant keeping the target federal funds rate below” normal levels.
The announcement was more dovish than expected, said Putri Pascualy, managing director and senior credit strategist for Pacific Alternative Asset Management Co. “The market had expected the Fed to be more tilted toward hawkish statements. The Fed has two levers to pull — the timing of the first hike and the speed. To me, that says that they’re going to be sticking to the path of low and slow.”
Ms. Pascualy said for bond markets, this means “it’s going to be a tale of two cities. It’s going to be good for investment grade that the rate rise will be further away. However, high yield is a different story. It’s been very tumultuous for one reason, and that’s oil.” She noted that fear of that volatility “hasn’t been limited to the energy sector. People are very risk averse right now.”
At a news conference following the meeting, Chairwoman Janet Yellen said that most FOMC members expect that it will be late 2017 when the federal funds rate returns to a more normal level.