The Federal Reserve left its principle interest-rate target unchanged today, as economists had widely expected.

The Fed’s Open Market Committee left its key rate target at 1%, where it has been since June 2003. This is the federal funds rate — the Fed-influenced rate charged on overnight loans between banks. The rate hasn’t been above 2% in two years.

In its statment, the FOMC dropped a pledge it had made at previous meetings this year, in January and March, to be patient in ordering any possible rate increases.

Instead, the Fed said that with inflation remaining low and companies operating below capacity, “the committee believes that policy accommodation can be removed at a pace that is likely to be measured.”

Canadian economists say the Fed announcement was all about guiding the market as to the timing of rate hikes, not about revealing the direction of monetary policy. Reading the tea leaves, economists see the hikes starting as early as June, and as late as November.

BMO Nesbitt Burns confirms that no one expected the Fed to raise rates today, so no one was surprised that they voted unanimously to leave the benchmark overnight fed funds rate unchanged at 1%. “It was widely expected that the press release following the meeting would signal a shift toward tightening down the road. In this, the Fed did not disappoint,” Nesbitt says.

Nesbitt says that the Fed believes the U.S. economy is expanding solidly, momentum is strong and the labor markets are improving. “It is clear to me that what the Fed is signalling is that they will increase rates gradually — not that they won’t raise them this year. Odds still favour a rate hike on August 10th (skipping action at the June 29-30 meeting),”predicts Nesbitt’schief economist, Sherry Cooper.

TD Bank economist, Gillian Manning, agrees that the Fed was clear that rates are headed higher, “but the Fed believes that the low starting level of inflation means that it can afford to move gradually”. Manning says, “A move in June cannot be ruled out, but we think the Fed will want to see a couple more employment reports to satisfy itself that the labour market recovery is for real. Accordingly, August still looks like the best bet, with a 25-basis point rate hike at that meeting being the first of four such moves to come this year – leaving the Fed funds rate at a still highly accommodative 2.00% at year-end.”

RBC Capital Markets’ economist, John Johnston says, “The statement’s wording leaves the Fed with plenty of wiggle room … the Fed has given itself flexibility with respect to timing and magnitude [of rate hikes]. The issue of timing is left wide open by the statement with key data releases likely to drive this process in the weeks ahead.”

“Initial market reaction suggests the statement was more dovish than expected,”Johnston says. “However, we found it a little more hawkish than we expected, and markets appear to be coming around to this view as we write. As a result, we would be surprised to see the Fed funds futures get too far away from pricing anything but 50/50 odds of a quarter-point hike in Jun, especially with the employment report coming on Friday.” RBC’s current forecast projects the first Fed move in September and a year end Fed funds target of 1.75%.

Bank of Montreal senior economist, Sal Guatieri, is most dovish, saying, “We still believe the Fed will begin tightening credit in November to gradually return policy to a more neutral setting. However, the release of stronger-than-expected data in coming months, especially the jobs numbers, risks advancing the policy action into the summer.”