Two dissents from decision The Federal Reserve on Wednesday repeated that interest rates are likely to stay low for a “considerable time” after it ends its bond-buying program in October, but the central bank also took concrete steps to prepare for an increase some time in 2015. The central bank’s vote to stick to its current go-slow approach on raising interest rates drew two dissents, the first time that’s happened since Janet Yellen took over as chairwoman in February. Lena Komileva, chief economist at G+ Economics, said the Fed was cautious, avoiding setting off a market countdown to its first rate hike. “Officials remain wary of letting market rates run too far ahead of policy, especially with the effects of the end of QE next month still to be revealed,” Komileva said. Stocks moved higher after the Fed decision was announced. The Dow Jones Industrial Average DJIA, +0.64% set a record, up 45 points, or 0.3% to 17,176.41. The more hawkish presidents of the Dallas and Philadelphia Federal Reserve banks argued that rates will likely have to rise sooner than the Fed thinks—most analysts expect the first increase in mid-2015—and that the majority is understating the improvement in the U.S. economy. By leaving in the language about a “considerable time,” the Fed signaled it’s still not prepared to raise the fed funds rate earlier than markets expect. Keeping the language was seen as a victory for the doves on the committee. The rate has hovered near zero since 2008. “By opting to retain this phrase in the statement, the committee has not precluded a rate hike in the second or third quarter of 2015 nor have they guaranteed a tightening in policy,” chief economist Stephen Ricchiuto of Mizuho Securities wrote to clients. He suggested the Fed was likely swayed in part to stand pat because of weaker-than-expected job creation in August and a receding rate of inflation. In a news conference after the meeting, Yellen said the labor market still has room to improve and most Fed officials want to see more evidence of progress before acting. “Things will depend on how the economy evolves and that will change over time and there is a good deal of uncertainty associated with it,” she said. But the Fed also sent some hawkish signals. “They gave us some medicine and they gave us some sugar as well,” said John Canally, economist at LPL Financial. A majority of 10 Fed officials expects interest rates to rise to a median rate of 3.75% by the end of 2017, according to the central bank’s updated “dot plot.” Only four expect rates to be below that threshold. This shows the Fed will be quick about raising rates, once it starts. Treasury prices fell on that outlook, with the 10-year Treasury note10_YEAR, +0.61% yield rising 2.5 basis points on the day at 2.614%. The dollar USDJPY, +0.35% also reacted to the dot plot, with the dollar pushing to a new six-year high versus the Japanese yen and gaining ground on the euro. The central bank adjusted the dot plot to show for the first time that the Fed expects to move the fed funds rate in a range, instead of giving a specific target. Each dot now shows the midpoint of the range of the federal funds rate will be at the end of each year. According to the new plot, Fed officials now expect the midpoint of the Fed funds rate to be 1.375% at the end of 2015 and 2.875% by the end of 2016. These are up from 1.125% and 2.5% in the prior forecast in June. The Fed also released a new exit plan, agreed to by all Fed officials except one. Key points of the exit plan include that the Fed will keep reinvesting proceeds of maturing securities until it begins increasing the federal funds rate. The Fed left open the possibility of selling assets, but said it doesn't expect to see agency mortgage backed securities except for in limited fashion. The Fed said that it expects its $4.4 trillion balance sheet in the longer run should return to a size necessary to implement monetary policy and to hold primarily Treasurys. The central bank also said it would launch a test program on the sale of so-called reverse repos as part of a process of figuring out the best way to increase interest rates when the time comes. The Fed revised the terms of its overnight reverse repo test program to allow each counterparty to bid up to $30 billion a day from the previous maximum of $10 billion. Each operation will have a $300 billion size limit. As expected, the Fed trimmed the size of its bond buying plan by $10 billion to $15 billion. That’s the seventh straight meeting with a $10 billion taper of QE3. In the statement, the Fed said it expects to end the asset purchase program at its next meeting at the end of October if economic data doesn't surprise over the next six weeks. via marketwatch