Fed patient in beginning to normalize monetary policy stance

The U.S. Federal Reserve said Wednesday that it can be patient in beginning to normalize the stance of monetary policy.

It reaffirmed the guidance to maintain federal funds rate at near zero target range for a consideration time following the end of asset purchase program in October, the Fed said in a statement released after a two-day meeting of its Federal Open Market Committee (FOMC), the Fed's chief body for monetary policy.

The patient approach, a new wording in the FOMC statement, is consistent with its previous guidance and did not signify changes in monetary policy stance, said Janet Yellen at a press conference on Wednesday, adding that it's unlikely the Fed will raise rate for at least next couple of policy meetings.

The central bank said in the statement that the U.S. economic activity is expanding at a moderate rate since October, the same judgment to its October statement.

As for the recent decline in energy prices, the Fed said inflation has continued to run below the Fed's longer-run objective, partly reflecting declines in energy prices.

Yellen said at the press conference that the impact from falling energy prices will be transitory, and the committee expected inflation to rise gradually toward 2 percent as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate.

In regard to labor market, the Fed said a range of labor market indicators suggested under-utilization of labor resources continued to diminish.

Employment is rising at a healthy rate and the U.S. economy is strengthening, reflecting in part a highly accommodative stance of monetary policy, said Yellen.

On the same day, the Fed also released its latest economic projections and the target federal funds rate projections.

The Fed's latest projections showed that the U.S. economy will expand at 2.3-2.4 percent this year, higher than its September forecast of 2-2.2 percent. It maintained its forecast for 2015 GDP growth unchanged at 2.6-3 percent. Considering the improvements in the labor market, the central bank expected the unemployment rate to drop to 5.8 percent this year and further to 5.2-5.3 percent in 2015, both lower than its September projections.

In view of the lower energy prices, the Fed sharply cut its inflation projections. It expected the price index for personal consumption expenditures (PCE) to reach 1.2-1.3 percent this year, lower than its September forecast of 1.5-1.7 percent. In 2015, the inflation rate will stay around 1-1.6 percent.

Yellen said lower energy prices were positive to the U.S. economy, as they would boost household demand and act like tax cuts for families.

According to the forecasts, the median projected federal funds rate, the Fed's main economic lever, was 1.125 percent for the end of 2015, lower than the September projection. This might indicate a slowing pace in rate increase. Most economists think the Fed's first rate increase would occur in June next year.