Federal Reserve Chair Janet Yellen sought to reassure investorsthat the central bank's latest interest-rate increase wasn't aparadigm shift to a trigger-happy policy driven by fears of fasterinflation.

Speaking to reporters after the Fed's quarter percentage-pointmove on Wednesday, Yellen said the central bank was willing totolerate inflation temporarily overshooting its 2% goal and that itintended to keep its policy accommodative for “some time.”

“The simple message is the economy's doing well. We haveconfidence in the robustness of the economy and its resilience toshocks,” she said.

As a result, the Fed is sticking with its policy of graduallyraising interest rates, Yellen said. In their first forecasts inthree months, Fed policy makers penciled in two more quarter-pointrate increases this year and three in 2018, unchanged from theirprojections in December.

Today's decision “does not represent a reassessment of theeconomic outlook or of the appropriate course for monetary policy,”the Fed chief said.

Speculation of a more aggressive Fed had mounted in recent daysafter a host of central bank officials, including Yellen herself,went out of their way to telegraph to financial markets that a ratehike was imminent. The expectations were further fueled by news ofrising inflation.

Stocks rose and bond yields fell Wednesday afternoon asinvestors viewed the statement from the Federal Open MarketCommittee and Yellen's remarks afterward as a sign that the Fedisn't in a hurry to remove monetary stimulus. The FOMC raised thetarget range for the federal funds rate to 0.75% to 1%, asexpected, but Yellen's lack of urgency to snuff out inflation was asurprise.

R.J. Gallo, a fixed-income investment manager at FederatedInvestors, said the chorus of Fed speakers before this meeting ledinvestors to expect a move up in the number of projected rate hikesthis year, and even upgrades by Fed officials in the levels ofinflation and growth they anticipated.

None of that materialized.

“You didn't get any of those things,” Gallo said, which explainswhy Treasury yields quickly dropped after the Fed released the FOMCstatement and a new set of economic projections. “The expectationthat Fed was getting more hawkish had to come out of themarket.”

The U.S. economy has mostly met the central bank's goals of fullemployment and stable prices, and may get further support ifPresident Donald Trump delivers promised fiscal stimulus. Investorand business confidence has soared since Trump won the presidencyin November, buoyed by his vows to cut taxes, lift infrastructurespending and ease regulations.

Still, the data don't show an economy that's heating up rapidly— a point Yellen herself made after the third rate hike since the2007-2009 recession ended. In fact, the economy may have “more roomto run,” she said.

Stronger business and consumer confidence hasn't yet translatedinto increased investment and spending, said Yellen.

“It's uncertain just how much sentiment actually impactsspending decisions, and I wouldn't say at this point that I haveseen hard evidence of any change in spending decisions,” said theFed chair. “Most of the business people that we've talked to alsohave a wait-and-see attitude.”

Retail sales in February grew at the slowest pace since August,a government report showed earlier Wednesday. The Atlanta Fed'smodel for GDP predicts an expansion of 0.9% in the first quarter,less than a third the pace Trump is aiming for.

Fiscal Stimulus

Asked about the potential for a fiscal boost, Yellen made clearthe Fed is still waiting for more concrete policy plans to emergefrom the Trump administration before adapting monetary policy inreaction.

“There is great uncertainty about the timing, the size and thecharacter of policy changes that may be put in place,” Yellen said.“I don't think that's a decision or set of decisions that we needto make until we know more about what policy changes will go intoeffect.”

Yellen disputed suggestions that the Fed was on a collisioncourse with the Trump administration over its plans to fosterfaster economic growth through tax cuts and deregulation. “We wouldwelcome stronger economic growth in the context of pricestability,” she said.

She said she had met Trump briefly and had gotten together acouple of times with Treasury Secretary Steven Mnuchin to discussthe economy and financial regulation.

Further underscoring their lack of urgency, Fed officialsrepeated a commitment to maintain their balance-sheet reinvestmentpolicy until rate increases were well under way. Yellen saidofficials had discussed the process of reducing the balance sheetgradually, but had made no decisions and would continue to debatethe topic.

Policy makers forecast inflation will reach 1.9% in the fourthquarter this year, and 2% in both 2018 and 2019, according toquarterly median estimates released with the FOMC statement. TheFed's preferred measure of inflation rose 1.9% in the 12 monthsthrough January, just shy of its target.

Yellen pointed out, though, that core inflation continues to runsomewhat further below 2%. That rate, which strips out food andenergy costs, stood at 1.7% in January. The Fed's new forecast forthe core rate at the end of this year edged up to 1.9%, from 1.8%in December.

“The committee will carefully monitor actual and expectedinflation developments relative to its symmetric inflation goal,”the Fed said. Discussing the word symmetric in the statement,Yellen said during her press conference that the Fed was notshooting to push inflation over 2% but recognized that it couldtemporarily go above it. Two percent is a target, she reiterated,not a ceiling.

Bloomberg News

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