Federal Reserve Chairwoman Janet Yellen stated last week that policy makers may consider raising short-term interest rates after their April meeting if they're "reasonably confident" inflation will return to their 2% target in the medium term and labor market conditions continue to improve. Ms. Yellen lowered projections for future interest-rate increases based on weaker forecasts for growth and inflation. Investors reacted positively to the Federal Open Market Committee's decision to change its forward guidance on short-term interest rates. Many investors weren't surprised by policy makers' removal of "patient" from the central bank's description of its approach toward raising interest rates. Ms. Yellen said that the changed language does not suggest any "impatience" about raising rates. She said the economy continues to face some challenges and that the central bank has already made downward revisions to its projections for GDP growth, the longer-run unemployment rate, and inflation. The Fed also lowered estimated increases in short-term interest rates. "The Federal Reserve lowered its view on full employment, which indicates that the governors believe the labor market still has room for improvement despite the relatively strong recent payroll numbers," said Vanguard economic analyst Tolani. "Their decision to lower the estimate of full employment is most likely driven by the lack of wage pressure in recent months, making wages one of the key indicators to watch going forward."
source: Vanguard Group