The US Federal Reserve has stated it will need to see “further improvement” in the labour market before it moves to raise interest rates.
But the Federal Market Open Committee (FOMC) did not use the word “patient” as it had done in previous statements.
It stated that since it met in January, economic growth had “moderated somewhat” and confirmed that it will be appropriate to raise the target range for the federal funds only when the labour market has improved and it is “reasonably confident” that inflation is heading towards its 2 per cent objective.
The FOMC said: “Consistent with its previous statement, the Committee judges that an increase in the target range for the federal funds rate remains unlikely at the April FOMC meeting.”
Anna Stupnytska, global economist at Fidelity Worldwide Investment, called a June hike “highly unlikely” and suggested the Fed’s statement was on the “dovish side”.
She added: “It seems the Fed continues to believe that costs of hiking too early and too fast are clearly higher than costs of being behind the curve and moving slower—and I concur with this view.”
Ms Stupnytska pointed to three indicators – unemployment, wage growth and core inflation – and said only a “definitive turnaround” of these will give the Fed the confidence to go ahead with the first interest rate rise.
Nick Gartside, chief investment officer, fixed income at JP Morgan Asset Management predicted there will be two rate hikes in 2015 in September and December, with a Fed funds rate of 0.75 per cent by the end of the year.
He added: “We expect an additional 4 rate hikes in 2016 to 1.75 per cent by year end.”
