FOMC drops "patient" from interest rate statement

The Federal Reserve has dropped the word “patient” from its interest rate guidance, but also said the first rate hike may not take place until September, later than expected.

The Federal Open Market Committee (FOMC), the panel that decides on rates, added that an increase in rates at its meeting in April “remains unlikely”, an indicator that expectations for tightening should be reined in.

FOMC sticks to mandate, full-employment and inflation

The newly reformulated statement says that rates would only be raised once the Fed “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."

“The committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the committee views as normal in the longer run,” the Fed said in a statement.

The vote was unanimous at 10-0.

“conditions may warrant keeping the fed funds rate below normal levels”

Caution seemed to stem primarily from lower expectations for growth Stateside, with the bank pointing out that “economic growth has moderated somewhat.”

The monetary authority's rate setters now expect the Fed funds rate - the overnight rate paid on banks' deposits - to increase at half the speed they did in December.

Median projection for Fed funds rate drops

The median forecast for the level of the central bank's main policy rate at year-end is now 0.625%, in comparison to the 1.125% projected in December.

Stock markets had fallen ahead of the release, but rebounded on the news. The Dow Jones Industrial Average reached triple-digit gains.

The Fed’s decision comes after months of consistent growth in the jobs market. The US unemployment rate fell to 5.5% last month, down from a high of 10% in October 2009. 2014 was the best year for job growth since the late 1990s.

As of 18:21 the yield on 10-year US Treasuries was moving seven basis points lower to 1.98%, while the euro/dollar was sprinting higher by 1.52% to reach 1.0789.

In her follow-up press conference Yellen stated that a June rate hike cannot be ruled out, but at the time markets were only assigning a 10% probability to such an outcome.