"But, given these latest projections and the broadly unchanged language on inflation in today's policy statement, officials are clearly still in a reasonably hawkish mood". In New York, JPMorgan chief USA economist Michael Feroli called it an "historic move".
US Dollar Index at hourly intervals.
John Silvia, chief economist at Wells Fargo, said some investors appeared surprised that the central bank still expects to raise rates by December.
"Following some slightly disappointing recent data, particularly softer than expected inflation, there were concerns that the Fed would start to revert to a more cautious strategy". The Fed, though, has yet to achieve its other objective of stabilizing prices at a 2 percent annual rate.
In a news conference after the policy decision, Yellen acknowledged the inflation shortfall had proved more persistent and inexplicable but said the Fed was cognizant of the risk of raising rates too slowly and letting the economy overheat or too quickly and pushing it into recession.
The Federal Reserve on Wednesday said it will hold short-term interest rates steady for the time being.
Above: The dot-plot graph. Rival chipmaker Nvidia was down 2.8 percent, while Tesla was flat. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.
It forecasts only two increases in 2019 and one in 2020. As the demand for the agency MBS and Treasurys decreases with the Fed pullback, it may put pressure on rates.
YDSTIE: A Fed research paper found quantitative easing lowered long-term interest rates by a full percentage point.
In addition to the Fed's gradual unwinding of its $4.5 trillion balance sheet, at a pace that will double to $20 billion a month after three months, the European Central Bank is expected to begin tapering its bond buys in coming months. It now has to decide how to unwind this money-printing programme without spooking the financial markets.
Since that time, the Fed has reinvested the money it got from maturing Treasury bonds to maintain the scale of its support.
"It's past time to reduce the Fed's balance sheet, because its role in the economy is unnecessarily large", said Tate Lacey, an economist at the Cato Institute, a libertarian think tank that has criticized the Fed for bulking up its balance sheet so much. Each quarter, it plans to increase the amount of bonds and securities it cuts from its balance sheet. Britain's FTSE 100 dipped 0.1 percent to 7,272.04 in early trading and Germany's DAX added 0.1 percent to 12,567.79.
The resulting market action was a bit of a sell-off for the precious metals, since the Fed decision signals greater confidence in the economy going forward. When the Fed first hinted at this move in 2014, central banks in Indonesia and India followed up with rate hikes.
Stable current account positions in Asia mean policymakers in the region are less concerned about sudden capital flight than they previously were, which has allowed them to focus their policies on economic fundamentals rather than competition for global capital. Platinum also tumbled 1.3% to $930/oz but palladium mostly held its ground at $905/oz, significantly tightening the spread between the two sister metals.