The Federal Reserve's lack of patience may be tested before long. Its monetary policy committee now anticipates domestic GDP will grow by less than 3 per cent a year indefinitely. That has curbed their expectations - and the market's - for higher interest rates accordingly. The steady and narrow consensus at the Fed, however, could easily prove misplaced.
The committee dropped the word "patient" from its policy statement, indicating that it is finally ready to consider raising the federal funds rate, the all-important overnight lending rate that has been hovering near zero for six years. The optimistic change in language belies a less bold outlook.
Estimates from the FOMC's March meeting reveal that most members forecast GDP growth at between 2.3 and 2.7 per cent this year and next, down from the 2.5 to 3 per cent they were projecting in December. They downgraded 2017, too, to between just 2 per cent and 2.4 per cent.
To put it into perspective, for the entire period from May 1994 through May 2001 overnight rates were at or above 4 per cent. And in the two decades before that, rates only spent about two years below 4 per cent, the Fed's seemingly new target range over the long run.
Interest rates vacillating in such a tight range rest on the Fed's relatively narrow projections proving accurate. Their central tendency estimates for growth, inflation and unemployment, for example, vary by only several tenths of a percentage point from 2016 onward. That means, say, any sort of economic surge or lurch in the markets probably would change the Fed's equation. For now, though, the central bank would seem to have very little about which to be patient.
The committee dropped the word "patient" from its policy statement, indicating that it is finally ready to consider raising the federal funds rate, the all-important overnight lending rate that has been hovering near zero for six years. The optimistic change in language belies a less bold outlook.
Estimates from the FOMC's March meeting reveal that most members forecast GDP growth at between 2.3 and 2.7 per cent this year and next, down from the 2.5 to 3 per cent they were projecting in December. They downgraded 2017, too, to between just 2 per cent and 2.4 per cent.
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The grimmer landscape is probably what caused them to slash their estimates on rates. While the committee still largely sees overnight rates rising this year, the median assessment now puts them at just 0.625 per cent by year-end. Just a few months ago, the figure was 80 per cent higher. Future years are affected, too. Even in the longer run, just three of 17 participants see the fed funds rate target at or above 4 per cent.
To put it into perspective, for the entire period from May 1994 through May 2001 overnight rates were at or above 4 per cent. And in the two decades before that, rates only spent about two years below 4 per cent, the Fed's seemingly new target range over the long run.
Interest rates vacillating in such a tight range rest on the Fed's relatively narrow projections proving accurate. Their central tendency estimates for growth, inflation and unemployment, for example, vary by only several tenths of a percentage point from 2016 onward. That means, say, any sort of economic surge or lurch in the markets probably would change the Fed's equation. For now, though, the central bank would seem to have very little about which to be patient.