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March 18, 2015 01:00 AM

Fed reaffirms low federal fund rates, but drops 'patient' in approach

Rob Kozlowski
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    Federal Reserve Building

    The Federal Open Market Committee is reaffirming the current zero to 0.25% target range for the federal funds rate, said a statement Wednesday at the end of a two-day meeting.

    Noting that economic growth has “moderated somewhat” since it last met in January, the committee overall declined to specify a point at which it will consider raising the rate except to say it would continue to assess the progress toward “objectives of maximum employment and 2% inflation” seen as necessary to raise the rate.

    The committee said in its statement that it expects inflation to remain at its low level in the near term with a gradual rise to 2% in the medium term, and also sees “labor market indicators continuing to move toward levels the committee judges consistent with its dual mandate.”

    “I think what a lot of people were expecting was that the Fed was going to remove the word ‘patient,’” said Robert Tipp, managing director and chief investment strategist at Prudential Fixed Income. “When in fact what happened is the trend of changes in their expected path for the Fed funds rate began to come down in December as they began to acknowledge that the stronger dollar and the international situation was basically going to stay their hand.”

    “Although they removed the word ‘patient,’ they reduced fairly dramatically their expected path of rate increases,” Mr. Tipp said.

    “Today’s FOMC communications now make a June rate increase quite unlikely,” said Steven Friedman, director, central banks and official institutions at Fischer, Francis, Trees & Watts, in an e-mail. “Most importantly, committee participants now project a lower longer-run unemployment rate compared to their December projections. This tells me they believe that the economy won’t hit full employment conditions until around the end of the year. As such, they will be in no hurry to raise rates, especially as their inflation projections through 2016 moved lower as well. ‘Patient’ is no longer in the statement, but they will continue to take a patient approach nonetheless.”

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