Financial world waits for Federal Reserve interest rate word

Financial world waits for Federal Reserve interest rate word
Text size Aa Aa

In Washington top US central bank officials are holding a crucial meeting.

The Federal Reserve policy makers are deciding to what extent they will signal their intentions on raising interest rates for next year.

Fed Chair Janet Yellen will hold a news conference when the meeting ends on Wednesday giving guidance on how they see the state of the US economy,

It has strengthened and jobs have been created faster-than-expected since the Fed last met in October.

But inflation in the States remains below-target and the policy makers must also consider the effects of economic weakness in Europe and Asia.

Timing is everything

In October the Fed’s end of meeting statement it repeated that benchmark rates were unlikely to rise for a “considerable time.”

Officials will have to decide whether to replace that phrase.

They have suggested mid-2015 is a reasonable time to start tightening monetary policy after six years of near-zero rates, and financial markets generally agree.

If the phrase is dropped, as many Wall Street economists expect, the Fed could replace it with a pledge to be “patient” in an effort to prevent an abrupt market reaction that could throw off the economy’s momentum.

If it is kept, as centrist Fed policymakers Dennis Lockhart and John Williams suggested last week, Yellen would have to explain the need for such caution in the face of falling unemployment and signs that wage growth is edging up.