Fed Flags Slow Pace for Rate Hikes

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from The Wall Street Journal,

Chairwoman Janet Yellen stresses caution as central bankers want to see higher inflation, more progress on jobs.

The Federal Reserve signaled Wednesday that it was moving toward interest-rate increases later this year, with the economy now firmer after a winter slump, but officials emphasized they would move even more cautiously than expected.

“Economic conditions are currently anticipated to evolve in a manner that will warrant only gradual increases in the target federal-funds rate,” Fed Chairwoman Janet Yellen said in a press conference following the Fed’s two-day policy meeting.

As part of its release, the Fed suggested it might raise rates only once in 2015 by a quarter percentage point, rather than twice as many officials previously anticipated. By December 2017, the Fed expects its benchmark short-term interest rate to remain below 3%, far lower than it has been for the past half century this long into an economic expansion.

For now, the Fed said a benchmark interest rate near zero, where it has been since December 2008, “remains appropriate.” Inflation has been running below the Fed’s 2% inflation target for three years and officials want to be sure it is moving up before changing rates. They also want to see more progress on jobs.

Investors took the signals coming from the central bank in stride. The Dow Jones Industrial Average finished the day up 31.26 points, or 0.2%, at 17935.74. Yields on 10-year Treasury notes were barely changed, finishing the day at 2.306%.

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