The Federal Reserve released a policy statement yesterday that confirmed the central bank’s pledge to keep interest rates low for the foreseeable future to help stimulate growth as 2014 comes to a close and economists await for signals of an interest rate hike in 2015 as the U.S. economy recovers and the demand for aggressive monetary policy from the Federal Reserve to fight off recession slowly wanes.
The Fed wrote that it can be patient in beginning to normalize the stance of monetary policy and allow rates to move higher.
“Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy.”
The Fed maintained that it will be appropriate to keep short term interest rates low, between 0 to 1/4 percent target range, for a “considerable time” following the end of its quantitative easing program in October, “especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.”
But in the very next sentence Fed Committee members acknowledged that if incoming economic continues to improve, then rate increases are likely to occur “sooner than currently anticipated” or conversely “later than currently anticipated” if economic progress weakens.
“However, if incoming information indicates faster progress toward the Committee’s employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated” the statement reads.
Fed Chair Yellen said that the central tendency of 2014 GDP projections have moved up since September and come in at 2.3 to 2.4 percent.
Inflation expectations for 2015 are between 1 and 1.6 percent.