The US Federal Reserve has taken a tiny step toward raising interest rates for the first time since 2000 by dropping a five-month-old pledge to keep them low "for a considerable period."
In a move that surprised and confused financial markets last night, the US central bank's policy-setting Federal Open Market Committee (FOMC) said it "can be patient" about lifting its key overnight bank-lending rate target.
The Fed held the federal funds rate target at 1 per cent - a 1958 low reached last June - but the statement issued after the policy-setting meeting left traders with a sense it was preparing for eventual rate rises, however vague the timing of any action might be.
"This seems like a baby step toward tightening," said economist Mr Drew Matus of Lehman Brothers in New York. "However, it does not alter the fundamental outlook, which is that the Fed is not in any hurry to raise rates."
In a statement following a two-day meeting, the FOMC said economic activity was on the upswing since the last policy meeting on December 9th, implying a growing confidence the recovery from the 2001 recession was sustainable.
"The evidence accumulated over the intermeeting period confirms that output is expanding briskly," the FOMC said. "Although new hiring remains subdued, other indicators suggest an improvement in the labour market."
Stock prices fell as investors took profits in the apparent belief that higher rates are on the way - something that could weigh on corporate profits. The Dow Jones industrial index slumped 141.55 points to close at 10,468.37 while the high tech-laden Nasdaq composite lost 38.67 points at 2,077.37.