The Federal Reserve is looking at hiking up the interest rates in the coming months, but also downgraded the economic growth forecast and inflation projections. The U.S. Central Bank has removed references to “patience” on the policy statements about rates, which means it is giving the okay for the Federal Reserve to raise rates in the next few months. Although the U.S. Central Bank also noted that the road to recovery from the depression and recession is still shaky, and it hasn’t bounced back quite as quickly as predicted.
There was also a cut in the estimate of the federal funds rate, which is the vital overnight lending rate, and it went from 1.125 percent to .625 percent for the end of the year. Investors took this news really well, which sent all of the stocks and the market in a higher direction than previously anticipated. The investors are looking at this as the signal that the economy is finally rebounding and this happy feeling has extended into the global market as well. Stocks on Wall Street has surged and oil prices increased has increased over 5 percent after the statement by Janet Yellen. However, the dollar did stumble a little after this announcement, but it is expected to continue climbing well into the end of 2015 and beyond.
One aspect of cutting the word “patient” out of the policy statement is that this is the clue that gives investors and banks a subtle hint that most of the interest rates will begin increasing, maybe in the next month or two. It’s more likely though that there won’t be many rate increases this year, maybe two, and the first might not happen until September, although it’s still pretty up the air at this point. This cut out is huge as far as language is concerned because this word basically tells investors that there is a chance an interest rate might be increasing at least a couple times this year. The important part is that all of the rate increases can’t happen at once, so investors and the stock market need to remember that it will be a gradual process, and there should not be impatience about getting these rates back up. It has been since June 2006 when the Federal Reserve last increased the rates, which was about 2 years before the financial collapse, and raising those rates too fast could have contributed to the downfall.
The only negative is that the outlook for the economy has been downgraded, which means that the job market and the overall economy is not expanding as most people believed it would be. There has been a very slow and mild increase compared to the more solid increase that the Federal Reserve was hoping would happen. This could be due to a number of factors, such as the Obamacare tax or the horrible winter weather, and this outlook could change once the spring hits and more employers begin looking for workers.