US Fed drops hints about interest rate | Business| Economy and finance news from a German perspective | DW | 17.12.2014
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US Fed drops hints about interest rate

The US Federal Reserve has said it's leaving its benchmark interest rate near zero. Although the central bank pledged to be patient before tightening monetary conditions, analysts saw it moving closer to a rate hike.

The Fed would not make any immediate changes to its monetary policy, it announced Wednesday after a two-day meeting of the Fed's Open Market Committee in Washington.

The US central bank argued it could be patient before moving to raise interest rates and backing away from its easy-money stance. It left its key federal funds rate near zero, where it had been for the past six years, to help the domestic economy emerge from a deep recession.

"Based on its current assessment, the committee judges that it can be patient in beginning to normalize the stance of monetary policy," the Fed said in a statement.

Room for interpretation

The Fed saw its announcement as consistent with its previous language saying that it would be a considerable time before it hiked rates.

But in previous OMC statements, the Fed had pointed to worries about the economic woes of the eurozone, Japan and Russia as factors that would influence its interest rate setting decisions. In the new statement, the OMC indicated it would place more exclusive emphasis on its assessment of the US economy, with less reference to global conditions - and its assessment of the US economy was mostly upbeat. The shift of emphasis would make a medium-term rate hike slightly more plausible.

With the unemployment rate in the country now down to a six-year low of 5.8 percent, many economists predicted the Fed would likely begin to lift its benchmark rates around the middle of next year, despite inflation being unlikely to rise to the 2-percent target value any time soon.

In fact, The Fed said Wednesday that it now expected inflation to fall to between 1 percent and 1.6 percent in 2015, down from a previous forecast in September of 1.6 percent to 1.9 percent. The downgrade reflects plummeting oil and gas prices.

hg/nz (Reuters, dpa)