Yellen's press conference: The Fed will not act impatiently

Yellen has reiterated that despite the removal of the word “impatient” from its interest rates guidance, the Fed will not act impatiently. As such, the pace of rate hikes is expected to be slow.

Although US job growth was strong, Yellen highlighted slack in the labour market. However, she asserted that the slowdown in growth did not impede the Fed’s forecast of moderate growth in the future.

Discussing the economy, Yellen claimed that inflation, which has largely fallen due to lower energy prices and a stronger dollar weighing on import prices, will gradually move back to 2%, the fed said, although probably not before 2017.

It will be appropriate to raise the target range when the committee has seen further improvement in the labour market and is reasonably confident that inflation will move back to its 2% objective.

“It will be appropriate to raise the target range for the federal funds rate when the committee 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,” she said.

The Fed downgraded its GDP forecast, but added that the unemployment rate would be lower than previous guidelines suggested.

An increase in the federal funds rate “could be warranted” at any point after the meeting in April, Yellen added, although the first increase would likely not happen before June.

However, forecasts in the dot plot indicate that the majority of the Fed only expect two rate hikes this year, implying the first hike would come in September or October at the earliest.

Paul Ashworth, chief US economist at Capital Economics, suggested that the Fed replaced its “patient” pledge with an explicit warning that rates are unlikely to rise in April in order to avoid a Treasury sell-off and a spike in yields. This being said, Ashworth pointed out that such a move would be unlikely due to the rate path’s downward revisions.

Meanwhile, Andrew Wilkinson, chief market analyst at Interactive Brokers, drew attention to the dot plot indicating the 17 members of the fed’s predictions on where short-term rates should be at the end of the year.

“In the December report, views ranged between 1-2% with little by way of consensus. Only three members agreed on any given rate. Three months on, there is an emerging consensus with seven members predicting that rates will end 2015 between 0.5 and 0.75%,” he said.

“The softer tone has caused the dollar to slide across the board, which coupled with the reignition of ‘lower for longer’ means a surge in equity prices,” he added.