Fed confident on U.S. growth, opens door wider to rate hike

Wed Dec 17, 2014 6:50pm EST
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By Howard Schneider and Michael Flaherty

WASHINGTON (Reuters) - The Federal Reserve on Wednesday offered a strong signal that it was on track to raise interest rates sometime next year, altering a pledge to keep rates near zero for a "considerable time" in a show of confidence in the U.S. economy.

Closing out a two-day meeting against a backdrop of solid domestic growth but trouble overseas, the U.S. central bank said it would take a "patient" approach in deciding when to bump borrowing costs higher.

Fed Chair Janet Yellen told a news conference that "patient" meant the policy-setting Federal Open Market Committee was unlikely to hike rates for "at least a couple of meetings," meaning April of next year at the earliest.

U.S. 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 hikes. The dollar rallied broadly against major currencies.

After some initial volatility, futures markets continued to point to a rate rise in September, while 13 of 19 big Wall Street firms polled by Reuters said they expected an increase by June, in line with results from a November survey. [FED/R]

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 normalize the stance of monetary policy," the Fed said. Significantly, it said the statement was "consistent" with its prior guidance that it would wait a "considerable time" before hiking rates.

Eric Green, an analyst with TD Securities in New York, said Yellen's definition of "patient" was "less dovish than a reading of the statement would suggest."   Continued...

An eagle tops the U.S. Federal Reserve building's facade in Washington, July 31, 2013. REUTERS/Jonathan Ernst