The US Federal Reserve called time on an era of historically low interest rates on Wednesday.

In its latest statement on the health of the US economy the central bank moved away from a pledge to be “patient” before deciding to raise interest rates. Economists expect that interest rates could now rise by the end of the summer, the first rise in more than six years.

The news marks the beginning of the end of the last central element of an economic policy born in the darkest hours of the Great Recession. The Fed has already ended a massive bond-buying programme, known as quantitative easing. But the central bank signalled that it still has concerns about the economy and would not rush to raise rates.

Stock markets, which had fallen ahead of the release, rose on the news as the Fed chair Janet Yellen cooled expectations of an immediate hike. “Just because we have removed the word patient from the statement does not mean we are going to be impatient,” Yellen said at a press conference.



All US markets rose. The Dow Jones Industrial Average ended the day up 227 points, having lost 130 points ahead of the Fed’s statement.

The Fed said rates would not rise before “further improvement in the labor market” and only when it was confident inflation was moving back to its 2% objective over the medium term.



“The committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the committee views as normal in the longer run,” the Fed said in its statement.



Randy Kroszner, Norman R. Bobins professor of economics at the university of Chicago Booth school of business and former governor of the Fed, said Yellen had been “very skillful” in the language used to signal the end of the low rate period.

Before the Fed was “patient” it had said rates would be low for a “considerable period” but that phrase was phased out. Now patient too has been dropped and so far there have been few major ructions.

“The latest statement gives the Fed a greater deal of flexibility to move when it needs to,” said Kroszner. “We are moving away from a focus on dates to data.”



The Fed cut its benchmark short-term interest rate to zero on 16 December 2008 and it has remained close to zero ever since. The rock bottom rate policy was part of a massive stimulus programme aimed at revitalising the economy in the wake of the worst recession since the Great Depression.



The Fed’s decision comes after months of impressive growth in the jobs market. Last month US unemployment rate fell to 5.5%, down from a peak of 10% in October 2009. Last year was the best year for job growth since the late 1990s.



Before the decision, Christine Lagarde, managing director of the International Monetary Fund, warned that markets could suffer a “temper tantrum” after the decision, as they did when the Fed announced it would ease off its massive bond buying programme, known as quantitative easing, in 2013.



But the Fed’s still cautious approach appeared to have paid off. “What’s important about this part of the statement is that it clearly says the FOMC is looking for ‘further’ improvement, meaning the economy and labour market has not yet met whatever criteria necessary to warrant a rate hike. We remain of the belief the Fed will first raise rates in September and view this statement, and the projection changes, and reducing the odds of a June hike,” Dan Greenhaus, chief strategist at broker BTIG, wrote in a note to investors.