The Fed has increased rates twice in 2017 and is now expected to push through three more hikes next year.
Fed officials acknowledged in their latest forecasts that the economy had gained momentum in 2017 by raising their economic growth forecasts and lowering the expected unemployment rate for the coming years. "It is a highly speculative asset", said Yellen, answering a question by CNBC's Steve Liesman. "They are prepared to let the economy run a little hotter". Wall Street was expected to open flat, with futures for the Dow and S&P 500 indexes trading flat.
Yellen said tax cuts were discussed by Fed members at this week's meeting, which culminated in an interest rate increase. She said that if stock prices were to suddenly "adjust" downward, the economy and the financial system should be able to withstand it. "The global economy is doing well, we're in a synchronized expansion", Yellen said.
Chicago Fed President Charles Evans and Minneapolis Fed President Neel Kashkari dissented in the policy statement on Wednesday.
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Congressional Republicans reached a deal on final tax legislation on Wednesday, clearing the way for final votes next week on a package that would slash the US corporate tax rate to 21 percent and cut taxes for wealthy Americans.
The rate hike was also partly aimed at preventing the gap between US and Chinese interest rates from widening too far and putting additional depreciation pressure on the yuan. Partly as a result, it foresees three additional rate hikes in 2018 under the leadership of Jerome Powell, who succeeds Janet Yellen as Fed chair in February.
Economists at Australia and New Zealand Banking Group estimate the PBOC will raise interest rates on the seven-day reverse-repo by a total of 35 basis points in 2018, taking the headline rate to 2.85%. That would mean the Fed would still be seeking to tighten credit three years from now.
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"Most of my colleagues factored in some fiscal stimulus", Yellen said, but have done so throughout the year, meaning the forecast rise from September "should not be viewed as estimates of the tax package".
Economic growth has been running at a robust annual rate of just above 3 percent during the spring and summer. But steady economic growth and low unemployment suggested it should act.
There are also signs inflation may be firming after a lengthy bout of weakness.
But inflation is projected to remain shy of the central bank's goal for another year, with weakness on that front still enough of a concern that policymakers saw no reason to accelerate the expected pace of rate increases. Policy makers plan to raise rates three more times in 2018, and then twice in 2019.
In the litany of reasons that explains why USA consumer price inflation has stalled, the drop in clothing prices last month, which was the largest in 20 years, takes its place alongside cheap cellphone contracts, one-off declines in drug prices and cheap gasoline, among others. Mr. Powell was nominated last month to take the helm and is awaiting Senate confirmation, but should face no difficulty after a panel voted 22-1 last week to advance his nomination.
Even as the move came as no surprise, analysts as always pored through the Fed's statement for more clues on its thinking that could hint at its future decisions.
The low rate policy was introduced in order to encourage investment after the financial crisis plunged the world into recession.
It is the third time this year that the Fed has raised rates, and the fifth since it slashed the rate to almost zero during the financial crisis of 2008 and 2009. Trump and many Republicans argue that those regulations are too burdensome, especially for smaller banks.