The Federal Reserve has delivered its clearest signal yet that key U.S. interest rates will rise next year.
The U.S central bank’s policymaking committee concluded its last meeting of the year Wednesday with an upbeat assessment of U.S. economic prospects. Among them: a further decline in the unemployment rate to 5.2 percent by the end of 2015, and continued economic expansion of between 2.6 percent and 3 percent.
Although key interest rates are not likely to rise for some time, Fed Chair Janet Yellen said it could happen in 2015.
“A number of committee participants have indicated that, in their view, conditions could be appropriate by the middle of next year," she said, "but there is no preset time and there are a range of views as to when the appropriate conditions will likely fall in place, so that’s something we will be watching closely."
Financial markets, which had been seeking clarity on the timing of rate hikes, reacted positively, sending key indexes about 2 percent higher Wednesday.
Bankrate.com senior analyst Greg McBride said that Yellen "was very clear in saying that, ‘Look, interest rate increases are not going to start anytime soon. It is not going to start in the next few meetings [several months], so that really is music to the ears of investors who love this environment of ultra-low interest rates."
Economists say the Fed's monetary policies have helped fuel the U.S. recovery. But other variables could determine the timing of rate hikes — including inflation, which remains below the Fed's target rate of 2 percent, and falling oil prices, which Yellen said have been a net positive for U.S. consumers.
Low oil prices are "certainly good for families, for households," she said. "It’s putting more money in their pockets, having to spend less on gas and energy, and so in that sense it’s like a tax cut that boosts their spending power.”
Given the continuing economic difficulties in some parts of the world, Yellen stressed patience and promised to monitor economic data closely before proceeding with anticipated rate hikes, which would ultimately increase the cost of borrowing for businesses and consumers.