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Reuters

The US Federal Reserve offered a strong signal that it was on track to raise interest rates sometime next year, altering a pledge to keep them near zero for a "considerable time" in a show of confidence in the American economy.
Closing a two-day meeting against a backdrop of solid domestic growth but trouble overseas, the US central bank said on Wednesday it would take a "patient" approach in deciding when to bump borrowing costs higher.
Fed chairwoman Janet Yellen told a news conference that "patient" meant the policy-setting Federal Open Market Committee was unlikely to increase rates for "at least a couple of meetings", meaning April next year at the earliest.
US stock markets and bond yields rose as investors digested a statement that evinced faith in the economy while still projecting a slow-going approach to rate increases.
The US dollar rallied broadly against other major currencies.
After some initial volatility, futures markets continued to point to an increase in rates in September, but many economists anticipate a move even sooner. The Fed has held benchmark overnight rates near zero since December 2008.
"Based on its current assessment, the committee judges that it can be patient in beginning to normalise the stance of monetary policy," the Fed said.
Significantly, it also said the statement was "consistent" with its statement that it would wait a "considerable time" before increasing rates. Eric Green, an analyst with TD Securities, said Yellen's definition of "patient" was "less dovish than a reading of the statement would suggest".
"In effect, it is open season after the March FOMC meeting," he said.
Yellen said that even with a sharp drop in energy costs, the Fed felt confident inflation would eventually turn higher and approach the central bank's 2 per cent target, and she suggested officials would feel comfortable raising rates as long as other economic signals stayed strong and expectations of future inflation held firm.
"By the time of lift-off, participants expect to see some further decline in the unemployment rate and additional improvement in labour market conditions," Yellen said.
After a week of turbulence in global financial markets, the US central bank looked firmly beyond economic difficulties in the euro zone, Japan and Russia and offered a mostly upbeat assessment of the United States' economic prospects.
Updated quarterly projections - presented as ranges that exclude the three highest and lowest forecasts - showed policymakers continue to expect the American economy to grow between 2.6 per cent and 3 per cent next year.
They foresee the unemployment rate, currently at a six-year low of 5.8 per cent, moving down to an average of between 5.2 per cent and 5.3 per cent towards the end of next year, a bit lower than in previous forecasts in September and in line with what is considered full employment.
Fed officials, however, acknowledged inflation was likely to slow next year to between 1 per cent and 1.6 per cent, the result of a decline in oil prices. But core inflation, which excludes volatile food and energy costs, is projected to dip only a bit next year before turning higher to close in on the Fed's target by the end of 2016.
Balancing optimism on growth and jobs with the reality of low inflation, policymakers indicated they would take a slower approach to the pace of future rate increases.
The median projected federal funds rate - the Fed's main economic lever - was 1.125 per cent for the end of 2015, a quarter of a percentage point lower than the last projection. Officials also lowered projections for 2016 and 2017.
Despite the sharp drop in oil prices and the collapse of the Russian rouble, the Fed's statement excluded any mention of the recent global economic turmoil.
Asked whether spillover from Russia's crisis could harm the US economy, Yellen said the two countries were too loosely linked to expect any appreciable impact.
"I see the spillover as pretty small but we're obviously watching that closely," she said.
The vote to back the statement was seven to three, with dissenting voices from both ends of the policy spectrum.


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Business

Economy

Global Economy

US stock markets and bond yields rise as central bank signals show of confidence in economy and slow-going approach to rate increases


The US Federal Reserve offered a strong signal that it was on track to raise interest rates sometime next year, altering a pledge to keep them near zero for a "considerable time" in a show of confidence in the American economy.
