Ms. Yellen’s remarks, and a statement issued by the Fed’s policy-making committee, both emphasized that the Fed’s intentions have not been shifted by recent economic events including stronger job growth and plummeting oil prices.
Financial markets, which have been on a roller-coaster ride in recent days, were generally cheered by the Fed’s announcement, sending the major indexes up roughly 2 percent late in the trading day.
For almost a year now, Fed officials have pointed steadily toward the summer of 2015 as the most likely time for the central bank’s long-awaited liftoff in short-term interest rates, which the Fed has held near zero since December 2008. The Fed removed from the latest policy statement the phrase that it would wait a “considerable time” before starting to raise rates, widely interpreted as meaning at least six months, but it said it did not mean to signal a change in intentions.“The committee judges that it can be patient in beginning to normalize the stance of monetary policy,” said the statement issued by the policy-making Federal Open Market Committee. “The committee sees this guidance as consistent with its previous statement.”The change in language, however, was backed by just seven of the 10 members of the committee, led by Ms. Yellen.
The committee showed signs of fragmentation, with dueling dissents in favor of more and less patience. Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis, dissented because he said the Fed should do more to raise inflation.
Richard W. Fisher, president of the Federal Reserve Bank of Dallas, and Charles I. Plosser, president of the Federal Reserve Bank of Philadelphia, both dissented because they said the Fed was not retreating fast enough.
None of the men, however, will serve among the voting members of the committee next year. They will be replaced by other presidents of reserve banks.
Fed officials continue to forecast that they will start to raise interest rates next year, according to an aggregation of their economic outlooks also published Wednesday. Fifteen of the 17 officials who submitted predictions said the first rate increase would come in 2015.
But the level they expect rates to reach by the end of the year slipped slightly to 1.125 percent, down from 1.27 percent in September.
The officials predicted the unemployment rate would fall into the range they regard as normal in 2015, ending the year between 5.2 percent and 5.3 percent.
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At the same time, they sharply downgraded their inflation expectations for 2015, predicting that prices would rise 1 percent to 1.6 percent. In September they had predicted inflation in 2015 of 1.6 percent to 1.9 percent.
Officials are still confident that inflation will rebound toward the 2 percent annual pace the Fed aims for and regards as most healthy.
The forecast for 2016 remained unchanged, with a predicted pace between 1.7 percent and 2 percent. The sluggish pace of inflation has replaced unemployment as the main reason the Fed is keeping short-term interest rates near zero. The job market has not healed completely, but Ms. Yellen and other Fed officials think the economy is now strong enough to start raising rates toward more normal levels next year.Employers have added, on balance, a monthly average of 224,000 new jobs over the 12 months ending in November, including 321,000 new jobs in November.The unemployment rate has fallen to 5.8 percent from 7 percent over the last year.
Fed officials also have expressed relatively little concern about the collapse of oil prices, the unraveling of the Russian economy or turbulence in global markets.
“The ruble doesn’t matter for the U.S. economy,” Michael Feroli, the chief United States economist at JPMorgan Chase, wrote in a preview of the Fed’s meeting. “Lower oil prices and interest rates are good things.”
Moreover, the Fed is likely to welcome a little more wariness in global markets. “It would be odd,” he said, "for the Fed to pivot from repeatedly warning of excessive risk-taking in corporate credit markets to warning about excessive risk aversion in those same markets.”
But Fed policy has failed to lift inflation back toward the 2 percent annual pace the central bank has fixed as its target. The Fed’s preferred measure of inflation increased by just 1.4 percent during the 12 months ending in October, and the annual pace has not touched 2 percent in more than two years.
The collapse of oil prices is likely to further suppress inflation in the coming months, but Fed officials have largely dismissed that as an artificial hit that will have little effect on the underlying pace of inflation.
“The lower inflation that we’ll get from the lower price of oil is going to be temporary,” the Fed’s vice chairman, Stanley Fischer, said this month in New York.
“I wouldn’t worry about that very much,” Mr. Fischer said, because the further lowering of inflation “is actually happening as a result of a phenomenon that’s making everyone better off, and furthermore likely to increase G.D.P. rather than reduce it.”
Market-based measures of future inflation have also fallen sharply. The compensation that investors are demanding for expected annual inflation over the next five years has fallen below 1.2 percent, the lowest level since the summer of 2010, shortly before the Fed began its second round of bond purchases.
Fed officials have played down the significance of this trend, too. In itsOctober statement, the Fed emphasized the stability of inflation expectations in surveys. Some officials say market-based measures are being distorted by high demand for Treasuries as investors flee the instability of foreign investments.
“I remain confident, despite the recent softening, that inflation will begin to move up towards our 2 percent objective next year,” William C. Dudley, the president of the Federal Reserve Bank of New York, said in a speech this month.
But Charles L. Evans, president of the Federal Reserve Bank of Chicago, said in an interview in early December that the Fed needed to focus on getting inflation back up to 2 percent. He said the surveys were also imperfect, because it was not clear that participants were paying attention. They routinely overestimate the level of inflation, and their expectations have rarely changed in recent years.
“It’s either rock solid and the public understands it or they really don’t move for any reason,” Mr. Evans said. “So the fact that the market measures have moved down makes me nervous, perhaps more nervous than some others.”