The Federal Reserve fired its first warning shot Wednesday that it is going to start hiking interest rates–sometime.
As the global investment community focused its attention on the U.S. central bank, the Fed Open Market Committee lived up to expectations: It dropped the word "patient" from its post-meeting statement, an indication, subtle though it may be, that the era of zero interest rates is about to end.
But the mostly dovish statement made little fanfare over eliminating the word, and in fact stated specifically that "an increase in the target range for the federal funds rate remains unlikely at the April FOMC meeting," a phrase missing from previous communiques.
"Just because we removed the word 'patient' does not mean we will become impatient," Fed Chair Janet Yellen said at a post-meeting news conference.
"The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term," the statement said.
Stocks quick turned positive, with the Dow up 100 points 5 minutes after the statement was issued. Yields on US 10-year Treasurys fell below 2 percent for the first time since Feb. 25. The dollar weakened.
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"What's important about this part of the statement is that it clearly says the FOMC is looking for 'further' improvement ,meaning the economy and labor market has not yet met whatever criteria necessary to warrant a rate hike," Dan Greenhaus, chief strategist at BTIG, said in a note. "We remain of the belief the Fed will first raise rates in September and view this statement, and the projection changes, and reducing the odds of a June hike."
"Patient" or not in the words of the closely watched statement, the Fed seems in no hurry to tighten.
Indeed, expectations for the pace of future hikes changed considerably. The so-called dot plot, which maps members' expectations of rates over the next several years, shifted lower to indicate a slower trajectory of tightening than originally anticipated.