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US stocks surge after Fed promises "patience" on rates

Federal Reserve building Image copyright Getty Images
Image caption Investors were cheered by language in the Fed's statement indicating a rate-raise might be further off

The US Federal Reserve has said it "can be patient" over any decision to raise interest rates at the end of its two-day policy meeting in Washington DC.

The statement sent US markets higher with the Dow Jones rising nearly 300 points.

Investors have been anxious about when the US central bank will raise its short term interest rate.

That rate has been kept at 0% since late 2008, when the Fed slashed rates in the wake of the financial crisis.

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However, as the US recovery has taken hold, the Fed, under chair Janet Yellen, has begun easing the measures it was taking to boost the US economy.

It ended its bond-buying programme known as quantitative easing in October, leading many investors to focus on when the Fed would begin to raise its short-term interest rate, known as the federal funds rate.

Open to interpretation

In explaining the Fed's thinking, Chair Yellen said at a press conference: "We expect to be able to normalise policy but until those conditions have lifted, that have held back economic activity, monetary policy will need to stay accommodative.

"So in that sense perhaps that's equivalent to saying that the path of normalisation is anticipated to be relatively gradual but again the path of rates will depend on how economic conditions actually evolve."

When pressed on what she meant when she said the Fed probably would not raise for the next couple of meetings, she tartly replied: "So, a "couple," I believe, the dictionary probably says a "couple" means two. So a couple means two."

That pushes any potential rate rise until at least April 2015.

Most observers had interpreted language used in the Fed's previous statements - suggesting that it would wait a "considerable time" before raising rates - as meaning the change would come some time later, in mid-2015.

A cushion

However, the addition of language indicating the Fed will be "patient" in its rate-raising decision has led some analysts to believe that a rate rise could be further off.

But Chair Yellen took pains to say that the language change was not necessarily indicative of any change in timing.

"Today's statement which indicates that the committee judges that it can be patient in beginning to normalise the stance of monetary policy does not signify any change in the committee's policy intentions as set forth in its recent statements," she said.

Some said that the extra language was simply a way for the Fed to give itself a cushion as it goes about adapting its monetary policy.

"The ambiguity is intentional and intended to maximise policy flexibility," wrote Ward McCarthy, chief US economist at Jefferies investment bank, in a note to clients.

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