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Fed plays down interest hikes

Pace of increase more vital than rate-liftoff date
Yellen

WASHINGTON – Janet Yellen wants you to know that while the era of zero rates may be drawing to a close, money will stay cheap for a long, long time.

The Federal Reserve chairwoman and her colleagues have stressed in recent speeches that monetary policy will remain unusually easy even after an expected tightening later this year, the first increase in almost a decade. They are telling investors that the pace of increases is more important than the liftoff date.

“This should be the slowest tightening cycle since the funds rate became the policy instrument of choice” in 1982, said Roberto Perli, a former Fed official who is now a partner at Cornerstone Macro in Washington.

Policymakers have ruled out an increase at the next meeting of the Federal Open Market Committee, April 28-29. New York Fed President William Dudley stressed on Monday that once they start to lift rates above zero, “we will simply be moving from an extremely accommodative monetary policy to one that is only slightly less so.”

While they have left the door open for a move in June, officials including Atlanta Fed President Dennis Lockhart have indicated a preference for patience amid signs of slowing first-quarter growth.

“I would lean to a little later versus a little earlier,” Lockhart, who votes on policy this year and is seen as being close to the consensus on the FOMC, told reporters after giving a speech in West Palm Beach, Florida last week.

The proportion of economists predicting the Fed will wait until September to raise rates rose to 70 percent in an April 3-9 survey from 32 percent last month.

While some officials express optimism that growth will pick up again after the impact of a stronger dollar and harsh winter weather wear off, the economy will still be hobbled by “structural damage” done by the Great Recession, said Cleveland Fed President Loretta Mester.



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