The Federal Reserve boosted its assessment of the economy anddownplayed low inflation readings while repeating a pledge toremain “patient” on raising interest rates.

The Federal Open Market Committee (FOMC) described the expansionas “solid,” an improvement over the “moderate” performance it sawin December. It substituted “strong” for “solid” in its evaluationof job gains after a meeting today in Washington.

While inflation “is anticipated to decline further in the nearterm,” the FOMC said in a statement, it is likely to rise graduallytoward its 2 percent goal “over the medium term” as the impact oflow oil prices diminishes. Policy makers saw a bonus in cheapenergy, saying it's boosting consumer buying power.

Stocks fell as the statement reinforced expectations that theFed will raise interest rates this year for the first time since2006. One caveat: Officials will take “international developments”into account when considering an increase, language that sent bondyields lower.

“The Fed's decision about the timing of liftoff is not assensitive to low inflation as before,” said Laura Rosner, a U.S.economist at BNP Paribas SA in New York and a former researcher atthe New York Fed. “Inflation is one of many factors that will beconsidered in deciding when to raise rates. The inflationundershoot is no longer receiving special emphasis.”

The Standard & Poor's 500 Index declined 0.8 percent to2,014.11 at 3:30 p.m. in New York. The yield on the 10-yearTreasury note was down 10 basis points, or 0.1 percentage point, to1.72 percent.

The Fed also dropped a clause from its Decemberstatement that the assurance of patience was consistent with aprevious pledge to hold rates low for a “considerable time,”especially if “projected inflation continues to run below” the 2percent target. The Fed has kept its main interest rate near zerosince December 2008.

All 10 voting FOMC members backed today's policy statement,marking the first unanimous decision since June.

Robust economic growth is giving Fed officials reason foroptimism, even as weaker global demand and a stronger dollar cutinto overseas earnings of companies such as Procter & GambleCo.

Since their last meeting, Fed officials learned that the world'slargest economy grew at a 5 percent annual pace in the thirdquarter, the most since 2003. A report Friday may show growth of3.1 percent, still well above the post-recession average of 2.2percent, according to a Bloomberg survey of economists.

Six-Year Low

Unemployment is at a six-year low of 5.6 percent, and theeconomy added 252,000 workers last month to cap the biggest annualgain since 1999 with growth of almost 3 million jobs.

Even as the Fed approaches its goal of full employment, itssecond mandate—for stable prices—remains well out of reach.

The Fed's preferred inflation gauge, personal consumptionexpenditures, rose 1.2 percent in November from a year earlier andhas lingered below the central bank's 2 percent target for 31months. Market-based expectations for inflation in the five yearsstarting five years from now tumbled earlier this month to 1.76percent, the lowest since 1999.

Oil prices near the lowest in almost six years signal inflationis likely to remain muted. West Texas Intermediate crude futuresfell to $45 a barrel this week, from $107 in June.

Economic reports yesterday indicated that cheap oil is a boonfor households and a mixed blessing for companies.

Consumer confidence soared in January to the highest level inmore than seven years as gasoline prices fell, while orders fordurable goods unexpectedly dropped for a fourth month, signalingthe global slowdown is weighing on manufacturers.

Another source of concern for some policy makers: stagnantwages, which point to continued labor-market slack. Average hourlyearnings increased 1.7 percent over the 12 months ended inDecember, the smallest gain since October 2012.

Fed officials, including San Francisco Fed President JohnWilliams and Atlanta's Dennis Lockhart, have signaled that amidyear increase would be appropriate.

Fed Chair Janet Yellen suggested at her December pressconference she's in no rush to raise rates. She said the referenceto being patient means the committee “is unlikely to begin thenormalization process for at least the next couple ofmeetings.”

Diminishing inflation expectations helped push yields on the10-year Treasury note to 1.71 percent earlier this month, thelowest since May 2013. It was 1.82 percent late yesterday. TheStandard & Poor's 500 Index has declined 1.4 percent this yearthrough yesterday amid disappointing fourth-quarter results fromcompanies including Caterpillar Inc. and Microsoft Corp.

A cooling global outlook is also giving policy makers pause. TheInternational Monetary Fund last week made the steepest cut to itsglobal-growth forecast in three years.

The FOMC gathering is less than a week after the EuropeanCentral Bank announced an expanded asset-purchase program of up to 60 billion euros(US$69 billion) a month to spur growth and counter deflationarypressures, highlighting the diverging prospects for two of theworld's largest economies.

–With assistance from Christopher Condon, Craig Torres andVictoria Stilwell in Washington and Steve Matthews in Atlanta.

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.