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Fed Almost Unanimous in Changing Forward Guidance, FOMC Minutes Reveal

The Federal Reserve was nearly unanimous in agreeing to adjust the forward guidance at its March policy meetings, as officials saw the removal of the word “patient” from the official rate statement as “appropriate.”

As expected, the Federal Reserve voted unanimously to keep the federal funds rate between zero and 0.25 percent at the March FOMC policy meetings. The target for the federal funds rate has been kept at a record low since December 2008.

“In their discussion of communications regarding the path of the federal funds rate over the medium term, almost all participants favored removing from the forward guidance in the Committee’s postmeeting statement the indication that the Committee would be patient in beginning to normalize the stance of monetary policy,” the minutes of the March 17-18 FOMC meetings revealed.

The records also said toward the Committee’s objective of maximum employment, and that such a change would not indicate that the Committee had decided on the timing of the initial increase in the target range for the federal funds rate.”

The March decision featured an important shift in the Fed’s language, as policymakers dropped the word “patient” from the official rate statement. This suggested that the Fed was warming to the idea of an interest rate increase, although the accompanying summary of economic projections showed any future increase would be much slower than previously thought. The median estimate for the federal funds rate at the end of 2015 was lowered to 0.625 percent from 1.125 percent. According to analysts, the Fed is unlikely to raise interest rates before September.

Policymakers were generally confident about the job market, acknowledging that underutilization of labour resources was diminishing. The meetings were held several weeks before the release of March nonfarm payrolls, which showed the slowest pace of job creation since December 2013.

Employers added just 126,000 nonfarm payrolls in March, the first time in 14 months the economy added fewer than 200,000 jobs. The unemployment rate was unchanged at 5.5 percent. Economists suggest that inclement weather was a major disruption in March and that job creation should rebound in the coming months. The Federal Reserve forecasts the unemployment rate to fall to 5.2 percent to 5.3 percent by the end of the year, according to last month’s projections.

The next FOMC policy meetings are scheduled for April 28-29.

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