17 Dec 2014
Fed maintains rates unchanged; removes considerable time but ask for patient
FXStreet (San Francisco) - The Federal Reserve decided to keep its interest rate unchanged at 0.0%/0.25% according to a press release issued on Wednesday. The Fed removes the 'considerable time' word but adds the term patient as "committee should be patient in beginning to normalize monetary policy."
The Fed added that guidance is consistent with considerable time. Nearly all Fed officials see rate hike in 2015. Fed voted 7- in favor of policy, Fisher, kocherlakota and plosser were the dissenters; however, all 3 dissenters are off the board next year.
The reaction was risk on: Dollar up, stocks up, yields up while gold and oil are down.
Key quotes:
The Committee sees this guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program in October, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.
The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.
Dissenters:
Voting against the action were Richard W. Fisher, who believed that, while the Committee should be patient in beginning to normalize monetary policy, improvement in the U.S. economic performance since October has moved forward, further than the majority of the Committee envisions, the date when it will likely be appropriate to increase the federal funds rate.
Narayana Kocherlakota, who believed that the Committee's decision, in the context of ongoing low inflation and falling market-based measures of longer-term inflation expectations, created undue downside risk to the credibility of the 2 percent inflation target.
Charles I. Plosser, who believed that the statement should not stress the importance of the passage of time as a key element of its forward guidance and, given the improvement in economic conditions, should not emphasize the consistency of the current forward guidance with previous statements.
The Fed added that guidance is consistent with considerable time. Nearly all Fed officials see rate hike in 2015. Fed voted 7- in favor of policy, Fisher, kocherlakota and plosser were the dissenters; however, all 3 dissenters are off the board next year.
The reaction was risk on: Dollar up, stocks up, yields up while gold and oil are down.
Key quotes:
The Committee sees this guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program in October, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.
The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.
Dissenters:
Voting against the action were Richard W. Fisher, who believed that, while the Committee should be patient in beginning to normalize monetary policy, improvement in the U.S. economic performance since October has moved forward, further than the majority of the Committee envisions, the date when it will likely be appropriate to increase the federal funds rate.
Narayana Kocherlakota, who believed that the Committee's decision, in the context of ongoing low inflation and falling market-based measures of longer-term inflation expectations, created undue downside risk to the credibility of the 2 percent inflation target.
Charles I. Plosser, who believed that the statement should not stress the importance of the passage of time as a key element of its forward guidance and, given the improvement in economic conditions, should not emphasize the consistency of the current forward guidance with previous statements.