WASHINGTON Fed's words hint at rise for interest
The current federal funds rate is at a 45-year low.
WASHINGTON (AP) -- Federal Reserve policy-makers reinforced some economists' belief that interest rates could move higher this summer, dropping an assessment that they could stay near rock-bottom levels for a "considerable period." Central bank officials said the economy was expanding briskly.
The change by Federal Reserve Chairman Alan Greenspan and his colleagues came Wednesday with agreement to hold a key short-term interest rate, called the federal funds rate, at a 45-year low of 1 percent, where it has been since last June.
Since its August meeting, policy-makers had been saying they foresaw holding rates low for a "considerable period." But that phrase is now gone. Instead, the Fed said it "can be patient in removing its policy accommodation."
Economists viewed the new language as a first step by Fed policy-makers to prepare Wall Street and Main Street for higher interest rates down the road.
Investors were jolted by the new language, interpreting it as a signal that higher rates were likely to come sooner than previously expected. Stocks fell sharply in trading.
Questions of timing
But economists offered different opinions about the timing of a possible increase in the funds rate -- the interest that banks charge one another on overnight loans and the Fed's primary lever to influence economic activity.
There seemed to be agreement among economists that there will not be a rate increase at the Fed's next meeting March 16.
"The Federal Reserve is putting a little less pressure on the accelerator and may be coming a little closer to putting its foot on the brake," said Lynn Reaser, chief economist at Banc of America Capital Management.
Reaser predicts the Fed could begin to nudge up rates as early as its June 29-30 meeting and that by the end of this year, the funds rate could rise to around 2 percent.