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Cliff Owen, Associated Press
Federal Reserve Chair Janet Yellen makes a statement on jobs and economic outlook, Wednesday, Dec. 17, 2014, at the Federal Reserve in Washington. The U.S. economy is finally doing better, and the Federal Reserve may be ready to acknowledge that fact.

WASHINGTON — The Federal Reserve is edging closer to raising interest rates from record lows given a strengthening U.S. job market and economy. But it says it will be "patient" in determining when to raise rates.

The Fed said Wednesday after a policy meeting that such an approach is consistent with its previous guidance that it expected to keep its benchmark rate near zero for a "considerable time."

The message from the Fed was that the strength of economic data and the level of inflation, not a calendar date, would dictate when it will raise rates. At a news conference, Chair Janet Yellen stressed that the Fed was making no changes in its policy. She said she foresees no rate increase during the first quarter of 2015.

Stock investors signaled their approval of the Fed's guidance that rates will likely stay low for at least several more months. The Dow Jones industrial average, which had risen about 160 points before the Fed issued its statement, rose slightly above that level an hour later.

The central bank gave no specific guidance on when the first rate hike might occur. Most economists think the first increase will occur in June as long as the Fed's inflation outlook doesn't remain persistently below its target rate of 2 percent.

In an updated economic forecast Wednesday, the Fed lowered its inflation forecast for next year to between 1 percent and 1.6 percent.

The action was approved on a 7-3 vote. The three dissents from the majority view reflected the sharp battles inside the Fed as it tries to transition from an extended period of ultra-low rates to a period in which it will start to raise rates. The Fed has not raised rates in more than eight years.

The dissents included Presidents Richard Fisher of the Dallas Fed and Charles Plosser of the Philadelphia Fed, who have long stressed the need for the Fed to prevent high inflation over the need to maximize employment.

But Narayana Kocherlakota, president of the Fed's Minneapolis regional bank, also dissented. He has pushed for greater efforts to boost job growth.

The Fed's decision to continue to say it expects to maintain record-low rates for a "considerable time" was a mild surprise. Most economists had expected it to drop that phrase in favor of saying it would be "patient" in assessing the economy's ability to withstand higher rates. In the end, the Fed's statement used both phrases.

Since the Fed's last meeting, the job market and other sectors of the economy have strengthened. Employers added 321,000 jobs in November, sustaining the healthiest year for job growth since 1999. The 5.8 percent unemployment rate is close to the 5.2 percent to 5.5 percent range that the central bank considers maximum employment.

The Fed is following the pattern it set in 2004 when it moved away from the phrase "considerable period" in January of that year and substituted "patient.": It followed that in June with the first rate hike.

The Fed's key short-term rate has been at a record low near zero since December 2008. When the Fed does begin raising rates, the expectation is that the rate increases will be a gradual process, with small quarter-point moves that will leave consumer and business interest rates at historically low levels for a considerable period.

At the previous meeting in October, the Fed ended its third round of bond purchases, which were intended to keep down long-term borrowing rates. Those bond purchases have pushed the Fed's holdings to close to $4.5 trillion — more than four times the level of the Fed's balance when the financial crisis hit in the fall of 2008.

While it is not adding to those bond holdings, the Fed is maintaining the current record-high level, which is continuing to exert downward pressure on long-term rates.

Supporters of the bond purchases defend them as a successful attempt by the Fed to use all tools at its disposal to battle the worst economic downturn the country has seen since the Great Depression of the 1930s.

But critics of the move contend that the Fed will find it hard to sell off its holdings without jolting financial markets. They also worry that the sharp increase in the money supply that resulted from the bond purchases will eventually trigger runaway inflation and potentially inflate dangerous asset bubbles.