(Reuters) – The Federal Reserve on Wednesday said it will likely not raise interest rates until at least late 2014, much later than it had said previously, as it nurses a still-sluggish economic recovery. That indicates that the folks at the Fed believe the economy is very weak still and at-risk. It offered little to suggest it was close to launching another round of bond-buying to prop up growth.
Fed officials did say, however, that it would maintain a “highly accommodative” monetary policy stance. Economic conditions “are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014,” the central bank said in a statement.
Many investors had expected the Fed to push its expectations for the first rate hike into 2014, but few had thought it would be late in the year. After every previous policy meeting dating back to August, the Fed had said rates were not likely to rise until mid-2013.
The central bank also appeared more sanguine on the inflation outlook, suggesting prices were now rising at a pace consistent with policymakers’ goals. The statement also dropped a reference saying the Fed was monitoring inflation and inflation expectations.
U.S. government debt prices rose sharply after the announcement, pushing long-term interest rates lower, while the dollar fell against the euro. Stocks prices moved into positive territory.
Aside from the 2014 rate pledge, the Fed’s statement hewed closely to its last policy pronouncement in mid-December.
It described the unemployment rate as still elevated and said it expects inflation to remain at levels consistent with stable prices. In a slight shift, it acknowledged signs that business investment has slowed.
“I think what they are seeing is that the rate of growth is not sufficient to bring down the unemployment rate,” said Brian Dolan, chief strategist at FOREX.com in Bedminster, New Jersey.
Richmond Federal Reserve Bank President Jeffrey Lacker, an inflation hawk who rotated into a voting seat this year, dissented against the decision. He preferred to omit the description of the time period for ultra-low rates.
