US Federal Reserve hints at interest rate rise in 2015
The US Federal Reserve Chair Janet Yellen has hinted that interest
rates in the US could start to rise in early 2015.
Ms Yellen said the Fed could begin raising rates six months after it
halts its monthly bond-buying programme.
She was speaking after the Fed said it will scale back bond purchases
by a further $10 billion (£6 billion) per month.
This is the third time in a row that the Central Bank has tightened
its stimulus efforts.
The latest reduction brings the Fed's monthly bond-buying down to $55
billion from $85 billion last year.
“This is the kind of term it's hard to define,” Ms Yellen said.
“Probably means something on the order of six months, or that type of
thing.”
If bond purchases end - as expected - later this year, this would
imply rate increases around April 2015.
The Fed lowered its overnight interest rate to 0% in December 2008 as
part of the steps it took to trigger growth in the economy amid the
global financial crisis.
No one knows what will trigger further tapering, a pause in tapering
or an increase in asset purchase. It's a major change in policy.
That crisis hurt the US economic growth and resulted in high levels
of unemployment.
Along with lowering the interest rates, the Central Bank also started
buying bonds in an attempt to keep long-term borrowing costs low to
encourage businesses to borrow and spend more, to try and spur growth in
the economy and create more jobs.
The stimulus efforts appear to have had an impact, with the US
economy showing signs of recovery of late.
That has seen the Central Bank scale back its key stimulus measure -
the bond-buying program also known as quantitative easing - for three
months in a row. However, in its latest policy decision, the Fed said it
would look at multiple factors before approving any rise in interest
rates.
It had previously hinted at doing so once the jobless rate fell to
6.5%.
“This assessment will take into account a wide range of information,
including measures of labour market conditions, indicators of inflation
pressures and inflation expectations, and readings on financial
developments,” it said. US stock markets fell on the news.
Some analysts are saying the change in the Fed's guidance led to
worries that interest rates may rise sooner than expected.
“The Fed moved the goal post again,” said Managing Director at
Hightower, David Molar.
“It goes from a 6.5% unemployment threshold to a qualitative approach
which is nebulous for the market. No one knows what will trigger further
tapering, a pause in tapering or an increase in asset purchase.
It's a major change in policy,” he said.
Managing Director at Southwest Securities, Mark Grant said, “What
seems to be troubling the market is that even though it reiterated that
it wouldn't be raising rates this year, people were put on notice that a
hike is coming. We are likely see some rise in short rates as a result
of this, if not out across the whole curve.”
- BBC
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