Federal Reserve policy statement: Interest rate hike is getting closer

Jessica Morris
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The Federal Reserve's policy statement shows it's inching closer to an interest rate hike.

Here are some of the key takes.

"Considerable time" is gone

The Fed has dropped its "considerable time" approach to interest rates rises instead favouring "patience" in normalising policy. "Considerable time" was widely believed to mean six months so many commentators now foresee rate hikes sooner rather than later.

Inflation forecast cut

The Fed has cut its inflation expectations for next year saying prices would rise between 1 per cent and 1.6 per cent. This is a sharp downgrade from a forecast of between 1.6 per cent and 1.9 per cent given in September. It's estimate for 2016 remained unchanged with inflation between 1.7 per cent and 2 per cent.

Unemployment predictions improved

It now expects the unemployment rate to move down to between 5.2 per cent and 5.3 per cent towards the end of 2015 which is a slight improvement on September's forecast.

What for oil?

Tumbling oil prices and Russia's slowdown haven't phased the Federal Reserve with growth forecasts unchanged .

Analyst reaction:

Naeem Aslam, chief market analyst at Avatrade said:

The Fed has slightly altered the language and introduced a new word which is "Patience".

When she announced this today it create a lot [of] confusion, but later she mentioned that the rate hike could take place in [the next] couple of meetings. This means that the most important meeting will be in April and expectations will be high going into this ... for rate rises.

The statement was dovish and here the press conference was very hawkish nevertheless, equity market is loving the news for now and traders have pushed US stocks up along with the USD.

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