Fed to be "patient" in hiking interest rates

WASHINGTON - The Federal Reserve vows to take its time in starting to raise short-term interest rates.

Offering its latest assessment of the U.S. economy, the Federal Open Market Committee said Wednesday that economic activity is expanding at a "moderate" pace, highlighting the recent job gains and decrease in the nation's unemployment rate.

"Based on its current assessment, the committee judges that it can be patient in beginning to normalize the stance of monetary policy."

The Fed says this approach is consistent with what it called its "previous" guidance that it expected to keep the rate near zero for a "considerable time."

The Dow Jones industrial average surged more than 300 points after the Fed's policy statement.

The market is saying that "the Fed is not going to surprise us with anything, or rush in to tighten next year," said Sean Lynch, managing director of global equity strategy at Wells Fargo Private Bank. Increased confidence in the economy and subdued inflation is "a good backdrop" for stocks, he added.

The Fed gave no specific guidance on when the first rate hike might occur. Most private economists believe that the first rate hike will occur in June as long as the inflation outlook doesn't remain persistently below its target rate of 2 percent.

"In short, officials have not changed their Plan A for the year ahead, which includes the start of the policy normalization process," said Jim O'Sullivan, chief economist with High Frequency Economics, in a note. "With an expected funds rate of over 1 percent by year-end, officials are implicitly suggesting a first move by around mid-year. That said, the plan is clearly contingent on economic and financial conditions."

In an updated economic forecast, the Fed lowered its inflation forecast for next year to 1 percent to 1.6 percent.