Fed’s Powell says drop of ‘accommodative’ language doesn’t signal any change in rate hike path

Finance news

The Federal Reserve remains on its policy path despite an indication from the central bank Wednesday that it is no longer taking an “accommodative” stance, Chairman Jerome Powell said.

Markets had been watching closely to see whether the Fed would drop the language, which has been in place going back years through its efforts to pull the economy out of its financial crisis-era malaise.

The policymaking Federal Open Market Committee issued a statement after its two-day meeting without the phrase.

“The change does not signal any change in the likely path of policy,” Powell told reporters. “Instead it is a sign that policy is proceeding in line with our expectations.”

Stocks rallied after the Fed meeting and bond yields edged lower. There was some chatter that dropping “accommodative” meant the Fed was getting close to the end of the current rate-hiking cycle as it saw the ability to stop at the “neutral rate” of interest.

However, FOMC members did not change their longer-run forecasts, still anticipating one more rate hike in 2018, three more in 2019, another one in 2020, and then keeping the funds rate half a percentage point above where it sees the longer-run neutral.

Powell emphasized his view on “accommodative” by saying that economic growth remains strong and that further hikes would be appropriate.

“This action reflects the strength we see in the economy and is one more step in the process that we began almost three years ago of gradually returning interest rates to more normal levels,” Powell said.