Fed offers no hint on timing of rate increase

WASHINGTON -- The Federal Reserve continued Wednesday to scale back its bond purchases, but offered no hints about when it plans to start raising interest rates.

In a statement after a two-day policy meeting, the Fed reiterated its plan to keep short-term rates low "for a considerable time" after its bond purchases end. Most economists think a rate increase is about a year away despite a strengthening economy. The government estimated Wednesday that the economy grew at a fast 4 percent annual rate last quarter.

The Fed's message, according to Jim O'Sullivan, chief U.S. economist for High Frequency Economics: "[F]or now, the economy is making clear progress and the purchase program is being wound down but (a) tightening is still not imminent and (b) when it does start it will be gradual."

The Fed revised the wording of its previous statement to acknowledge that while the unemployment rate has fallen steadily, the job market remains subpar in other ways. The Fed didn't specify what it meant. But Chair Janet Yellen expressed concern to Congress this month about stagnant wage growth, a high number of part-time workers who can't find full-time jobs and the proportion of the unemployed who have been out of work for more than six months.

Notably, the Fed changed its views on inflation to say that it has risen closer to its percent target. The statement said concerns that inflation would persistently run below the Fed's 2 percent target had "diminished somewhat."

"For the first time, the Fed acknowledged that 'inflation has moved somewhat closer to the Committee's longer-run objective,'" said Paul Edelstein, director of financial economics, in citing the central bank's policy statement in a note to clients. "What's more, the committee 'judges that the likelihood of inflation running persistently below 2 percent has diminished somewhat.'"

Rising inflation could spur the Fed to raise interest rates earlier than expected, Edelstein said, while adding that is unlikely to happen until hourly wages see sustained growth.

The Fed expressed no concerns about the slight acceleration in prices.

The Fed announced, as expected, that it's paring its monthly purchases by another $10 billion to $25 billion. The bond purchases have been intended to keep long-term borrowing rates low and are set to end in October.

The Fed's decision was approved on a 9-1 vote with Charles Plosser, president of the Fed's Philadelphia regional bank, dissenting. The statement said Plosser objected to continuing to include language that the Fed's key short-term interest rate was likely to remain at record low near zero "for a considerable time" after the end of its bond purchases. Plosser felt that language did not "reflect the considerable economic progress that has been made."

The stock market seemed to take the Fed's latest monetary policy update in stride. The Dow Jones industrial average fell 32 points to close at 16,880. The Nasdaq added 20 points, to 4,463, while the S&P 500 remained largely flat.