Federal Reserve Says Job Market Conditions Have Improved

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The Federal Reserve wrapped up a two-day policy meeting Wednesday, indicating in a statement that it is in no hurry to raise interest rates.

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Transcript

MELISSA BLOCK, HOST:

Today, Fed policymakers held open the possibility of a hike in interest rates later this year. But Chair Janet Yellen and her colleagues also signaled they're still in no rush to act. NPR's John Ydstie reports.

JOHN YDSTIE, BYLINE: The chatter before this week's Fed meeting was all about the word patient. In previous meetings, Fed officials had said they could be patient in deciding when to raise their benchmark interest rate. Janet Yellen went as far as to say that as long as the word patient remained in the Fed's post meeting statement, the Fed was unlikely to raise rates in the next couple of meetings. Today, that keyword was removed. But Yellen said the time for a rate hike is still undetermined.

(SOUNDBITE OF ARCHIVED RECORDING)

JANET YELLEN: Today's modification of our guidance should not be interpreted to mean that we have decided on the timing of that increase. In other words, just because we removed the word patient from the statement doesn't mean we're going to be impatient.

YDSTIE: Beginning last year, many investors and Fed watchers believed that a removal of the word patient at this March meeting would mean a rate hike would likely happen in June. But Yellen cautioned against reaching that conclusion, too.

YELLEN: This change does not mean that an increase will necessarily occur in June, although we can't rule that out.

YDSTIE: But the Fed's revised forecast for the economy led many analysts to the conclusion that the first rate hike is now more likely later in the year - maybe in September. Fed policymakers lowered their forecast for growth over the next three years and also lowered their inflation forecast for this year to below 1 percent. That's less than half the 2 percent inflation rate the Fed views as optimal for economic growth. Yellen said part of the reason for this slower growth and lower inflation is the strength of the dollar. It has significantly increased in value against other major currencies in the past year.

YELLEN: There has been a slight downgrading of estimates of growth for this year. We noted that export growth has weakened - probably the strong dollar is one reason for that. The strength of the dollar is also pushing inflation down.

YDSTIE: But Yellen also emphasized that the dollar is stronger partly because the U.S. economy is stronger. She said even with the lowered forecast, economic growth will be above the economy's normal growth rate over the next couple of years. So Yellen was asked what does the Fed need to see to decide it's time to raise rates?

YELLEN: We want to see further improvement in the labor market, and we want to feel reasonably confident that the economy is on a trajectory where we will achieve our 2 percent inflation objective.

YDSTIE: The downward pressure on inflation from the strong dollar and lower energy prices suggests that goal is still a ways away. Before this meeting, it was thought that financial markets might tank once the Fed removed the word patient from their statement, opening the door to higher rates, but the Fed's weaker forecast for growth and inflation convinced investors the rate hike is still some time off. That sent stocks up sharply and long-term interest rates lower. John Ydstie, NPR News, Washington. Transcript provided by NPR, Copyright NPR.