The Fed's not ready yet.
Despite expectations that the Federal Reserve would take its first, albeit tentative, step toward raising interest rates Wednesday, the central bank instead opted to keep a key piece of language in its post-meeting statement.
The phrase "considerable period" has been included to assure financial markets that it would be quite some time before the central bank increased its target funds rate.
Though the statement remained in, the context changed. Instead of dropping the language, it offered a softening of the tone that indicated it was still prepared to hike, though perhaps not as close as the market anticipated.
The exact language:
Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. 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.
As always, the FOMC left itself wiggle room in case conditions change.
"[I]f incoming information indicates faster progress toward the Committee's employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated," the statement said. "Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated."
Market participants debated over what it all meant: While the "considerable time" words remained, their meaning seemed to change.
"People were expecting them to drop the term 'considerable time.' That term is still in there, but the way that they've phrased the entire statement appears to say they're backing away from that and changing the language to a stance of being patient," said Ben Garber, an economist with Moody's Analytics.
"They are trying to open up more flexibility to raise rates as needed," he added.
There were three dissents, with two coming from the hawkish side—Dallas Fed President Richard Fisher and Philly Fed chief Charles Plosser—and one from the dovish side courtesy of Minneapolis Fed President Narayana Kocherlakota, who saw the statement as creating "undue downside risk to the credibility of the 2 percent inflation target." A three-dissent vote hasn't happened since 2011.