The published rate forecasts of the current 16 Fed policymakers,
known as the "dots" charts, suggested the federal funds rate would
end 2016 at 2.25 percent, a half percentage point above Fed
officials' projections in December. Bonds fell when the charts were
initially released, at the close of the U.S. central bank's March
18-19 meeting, as investors priced in slightly sharper rate rises.
But in minutes of the meeting published on Wednesday, several of the
meeting's participants said the charts "overstated the shift in the
projections," suggesting the Fed is not as eager to tighten policy
as the dots had seemed to suggest.
The minutes drove up Wall Street shares, with all three major U.S.
stock indexes ending up more than 1 percent, and caused the dollar
to weaken. Traders pushed out their expectations of a first Fed rate
hike by about six weeks, to July 2015, trading in interest-rate
The minutes "eased concern from market participants that the Fed is
on a set course to pull back before the economy is ready," said Phil
Orlando, chief equity market strategist at Federated Investors in
Although the latest chart showed a rise in the median forecast for
where rates will be at the end of 2016, some Fed officials thought
the change could be misleading.
One reason the chart could misrepresent the Fed's policy intentions
is that each dot marks a rate forecast from one of 16 Fed officials,
of which only nine vote on policy.
The minutes also showed that officials wanted to emphasize that the
official policy statement, and not the dots charts, give a better
indication of the likely path of rates.
The president of the Chicago Federal Reserve Bank, Charles Evans,
speaking on Wednesday in Washington, underscored that point, saying
there are "some serious flaws" with the dot charts because each Fed
official has very different policy assumptions.
"A lot of the differences of opinion that we have are on full
display in those dot charts," he said.
The minutes shed little new light on what might prompt an eventual
policy tightening after the Fed ends its bond-buying program, which
most policymakers thought would be completely wound down in the
second half of 2014.
After its March meeting, the Fed said in a statement that it would
wait a "considerable time" following the end of its bond-buying
program before finally raising interest rates.
Fed Chair Janet Yellen played down the "upward shift" in Fed
officials' rate forecasts in her post-meeting press conference,
saying that the "dots" are not the Fed's primary way to communicate
[to top of second column]
But what drew the most attention from financial markets was Yellen's
definition of "considerable time" as "around six months," depending
on the economy.
That comment, along with the forecasts that suggested rates could
rise more sharply than Fed officials previously thought, sent stocks
and bonds tumbling that day.
The minutes, published with the typical three-week lag, record no
discussion of what time frame the Fed viewed as "considerable."
It did show officials were unanimous in wanting to ditch the
quantitative thresholds they had been using to telegraph a policy
"Almost all members judged that the new language should be
qualitative in nature and should indicate that, in determining how
long to maintain the current (low) federal funds rate, the Committee
would assess progress, both realized and expected, toward its
objectives of maximum employment and 2 percent inflation."
A couple of the voting members wanted to commit to keeping rates low
if inflation remains persistently below the Fed's 2 percent goal.
The minutes included little on what specific economic conditions
might prompt the Fed to raise its key rate from near zero, where it
has been since the depths of the recession in late 2008. But they
showed that Fed officials engaged in a vigorous discussion of how
best to tweak rate guidance, including in a previously undisclosed
March 4 videoconference.
"We weren't expecting a ton of changes and we didn't get them," said
Todd Schoenberger, managing partner at Landcolt Capital in New York.
"As the economy sputters along, the Fed will continue doing what it
needs to do."
(Reporting by Jonathan Spicer and Ann Saphir;
by Rodrigo Campos, Ryan Vlastelica and Richard Leong; editing by
Andrea Ricci and Leslie Adler)
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