The Federal Reserve hinted that it might keep short-term rates “lower … for longer,”

The Federal Reserve hinted that it might keep short-term rates “lower … for longer,” causing a rally in the bond market and little changes in the stock market.

The yield on the 10-year Treasury, which had been rising sharply in recent sessions, fell sharply following the release of the Fed’s minutes at 2 p.m. ET.  The yield fell as low as 2.07%, down from last night’s close of 2.15%

Stocks were little changed after the Fed minutes, with the Dow Jones industrial off 43 points, or about 10 points lower than prior to the release of the minutes.

The key passages in the minutes released today of the Fed’s Jan. 27-28 meeting that suggest the Fed isn’t in a major rush to hike rates were:


Ty Laffoon
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* On risks of premature hike.
 

“In connection with the risks associated with an early start to policy normalization, many participants observed that a premature increase in rates might damp the apparent solid recovery in real activity and labor market conditions, undermining progress toward the Committee’s objectives of maximum employment and 2 percent inflation.”

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* On keeping rates “lower for longer.” 

“Many participants indicated that their assessment of the balance of risks associated with the timing of the beginning of policy normalization had inclined them toward keeping the federal funds rate at its effective lower bound for a longer time.”

* On risk of removing “patient” language.

“Many participants regarded dropping the ‘patient’ language in the statement, whenever that might occur, as risking a shift in market expectations for the beginning of policy firming toward an unduly narrow range of dates. As a result, some expressed the concern that financial markets might overreact, resulting in undesirably tight financial conditions.”