US Federal Reserve to take ‘patient’ approach on raising rates

  • Yashwant Raj, Hindustan Times, Washington
  • Updated: Dec 19, 2014 03:53 IST

The US Federal Reserve on Wednesday said interest rates will remain where they have been since 2008, near zero, but indicated a hike may come around the middle of 2015.

Global markets rallied after Fed’s statement, with US stocks enjoying their strongest session this year.

Closing out a two-day meeting against a backdrop of solid domestic growth but trouble overseas, the US central bank said it would take a “patient” approach in deciding when to bump borrowing costs higher.

“The committee considers it unlikely to begin the normalisation process for at least the next couple of meetings (the next is in January and and then in March),” Fed chairperson Janet Yellen said.

Officials indicated a hike could come around the middle of 2015.

Her remarks that the bank could look at “beginning to normalise the stance of monetary policy” was taken as the most direct reference to rate hike by the bank in a long time.

Yellen said the Fed felt confident inflation would eventually turn higher and approach the central bank’s 2% target, and she suggested officials would feel comfortable raising rates as long as other economic signals stayed strong and expectations of future inflation held firm. “By the time of liftoff, participants expect to see some further decline in the unemployment rate and additional improvement in labour market conditions,” she said.

The US central bank had injected liquid cash into the economy through quantitative easing QE), which was terminated after the last meeting of the bank’s top-decision making committee.

Speculation about the end of QE in 2013 had roiled Indian stock and currency markets. But it has since been better prepared for it, weathering it without a problem when it did finally ended.

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