Fed keeps its options open on interest rate increases

As expected, last week’s US Federal Reserve’s March meeting statement dropped the reference to the Fed being ‘patient’ in regard to increasing interest rates. 

The Fed anticipates that it will be appropriate to raise interest rates “when it has seen further improvement in the labour market and is reasonably confident that inflation will move back to its 2% objective over the medium term”.

While the removal of the word ‘patient’ was important, there was no clear indication from the statement or the press conference that the Fed has decided on the timeframe for such tightening. Instead, chair Janet Yellen stated that an increase in April was unlikely, but “such an increase could be warranted at any later meeting depending on how the economy evolves”.