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Business

US Fed keeps markets guessing about rate hike

The Federal Reserve has opened the door even further to a June interest rate hike. But it said it will need to see 'further' improvement in the job market before acting, warning that growth had 'moderated somewhat.'

The US Federal Reserve on Wednesday dropped its pledge to be "patient" in raising historically low interest rates, increasing speculation that an era of seemingly endless cheap credit could soon be coming to an end.

But Fed Chair Janet Yellen was quick to caution that the policymakers had not yet settled on a firm date.

"Just because we removed the word patient from the statement doesn't mean we're going to be impatient," she stressed after the two-day meeting of the Federal Open Market Committee (FOMC), the Fed's policy arm.

In a statement, the committee said it would be appropriate to raise rates from the current near-zero level, "when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2-percent objective over the medium term."

Economic outlook down

However, the Fed warned that economic growth had "moderated somewhat" since January. As a result, it said it had cut its growth forecast for this year to 2.3-2.7-percent range from its previous 2.6-2.7 estimate.

The committee also said that although unemployment had reached its lowest level in over a decade, currently standing at 5.5 percent, inflation remained weak, the housing sector sluggish and export growth slow.

Patrick Maldari, a senior fixed-income specialist at Aberdeen Asset Management, said that the Fed doesn't look to be in a hurry to raise rates.

"They went out of their way to talk about weakness in export growth, weakness in energy prices," he said.

June?

For months, analysts and investors have been busy parsing every word coming out of Washington, and Wednesday's vague statement was no exception.

"What's important about this part of the statement is that is clearly says the FOMC is looking for 'further' improvement, meaning the economy and labor market have not yet met whatever criteria necessary to warrant a rate hike," Dan Greehaus, chief strategist at BTIG, wrote in a note to clients.

Most analysts now speculate that the rate hike announcement could follow the committee's meeting in June. The Fed has kept its benchmark short-term rate near zero since late 2008 to stimulate the US economy after the deepest recession since the Great Depression.

pad/uhe (AP, AFP, dpa, Reuters)

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