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US stocks surge after Fed promises "patience" on rates | |
(35 minutes later) | |
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. | 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. | 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. | That rate has been kept at 0% since late 2008, when the Fed slashed rates in the wake of the financial crisis. |
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. | 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. | 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 | |
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 in mid-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 in mid-2015. |
However, the addition of language indicating the Fed will be "patient" in its rate-raising decision has led many analysts to believe that a rate raise could be further off. | However, the addition of language indicating the Fed will be "patient" in its rate-raising decision has led many analysts to believe that a rate raise could be further off. |
"The 'considerable time' language was interpreted as 'can be patient'," wrote Ward McCarthy, chief US economist at Jefferies investment bank, in a note to clients. | |
"The ambiguity is intentional and intended to maximize policy flexibility." |