WASHINGTON - The Federal Reserve is edging closer to raising interest rates from record lows given a strengthening U.S. economy. But it will be "patient" in deciding when to do so.
That was the message sent Wednesday as the Fed ended a meeting amid heightened expectation about a forthcoming rate increase. At a news conference afterward, Chair Janet Yellen said she foresaw no rate hike in the first quarter of 2015.
The Fed said in a statement that a "patient" approach to raising rates was consistent with its previous guidance that it plans to keep its key rate near zero for a "considerable time."
Yellen said the strength of U.S. economic data and the level of inflation, not a calendar date, will dictate when it will raise rates. At a time of global economic turmoil and collapsing oil prices, she stressed that the Fed was making no policy changes.
The Fed chair said she was prepared to let the U.S. unemployment rate fall from its current 5.8 percent to exceptionally low levels, saying that doing so could help cause inflation to rise closer to the Fed's 2 percent target.
Uncertainty about when the economy will fully heal from the ravages of the recession, which officially ended 51/2 years ago, is why the Fed's policy statements remain vague, said Steven Ricchiuto, chief economist at Mizuho Securities.
Stock investors signaled their approval. The Dow Jones industrial average, which had been up about 160 points before the Fed issued its statement, closed up 288 points. The stock market tends to applaud low rates because they make it easier for individuals and businesses to borrow and spend, and cause many investors to shift money into stocks in search of higher returns.
Most economists think the Fed's first rate increase will occur in June as long as its inflation outlook does not remain persistently below its target rate of 2 percent. In an updated economic forecast Wednesday, the Fed lowered its inflation forecast for next year to between 1 percent and 1.6 percent.
The Fed's statement was approved on a 7-3 vote. The three dissents reflected the sharp battles inside the Fed as it tries to transition from an extended period of ultralow rates to a period in which it will start to raise rates. The Fed has not raised rates in more than eight years.
The dissents included presidents Richard Fisher of the Dallas Fed and Charles Plosser of the Philadelphia Fed, who have long stressed the need for the Fed to prevent high inflation over the need to maximize employment.
Narayana Kocherlakota, president of the Fed's Minneapolis regional bank, also dissented. He has pushed for greater efforts to boost job growth.