"The market reaction to the Fed has been to lift the probability of a December rate hike to around two-thirds from the 50/50 proposition prices yesterday", said Deutsche Bank strategist Ken Crompton. The vote was unanimous.
"It doesn't get any more brazenly hawkish from Dr Yellen, who along with the majority of her colleagues is clearly in the December rate hike camp and the markets are reacting to this news", said Stephen Innes, head of Asia-Pacific trading at OANDA.
Some 12 of 16 officials said they expected the Fed would need to raise rates at least one more time before the end of the year, the same as in June.
Here's the old dot plot (each blob shows where one Fed committee member expects rates to be each year).
The median projection for the longer-run level of interest rates also edged down to 2.75% in the latest projections versus 3% in June.
However, data last week showing a bigger-than-expected jump in USA consumer prices gave a fresh boost to investor expectations for one more rate rise in 2017. In July, the core personal consumption expenditure (PCE) index, Fed's favor inflation indicator, rose only 1.4 per cent year on year, below Fed's two percent target and also lower than the 1.9 per cent in January.
Forecasts for economic growth and unemployment into 2018 and beyond were largely unchanged.
Yellen earlier this year blamed temporary factors, such as the introduction of cheaper mobile phone plans, for the persistence of undesirably low inflation. Gross domestic product is now expected to grow at a rate of 2.4 percent this year, 2.1 percent next year and 2.0 percent in 2019. The UK 10-year gilt was at 1.2839% from 1.3003%. The euro EUR= dropped to $1.1873 from above $1.20 just before the Fed's policy announcement.
The Fed isn't expected to alter rates at its next meeting, October 31-Nov. Fed funds futures are now pricing in a almost 61% chance of a 25-basis-point increase at the December meeting, putting the federal funds rate at 1.25% to 1.5%.
USA share prices recovered quickly from initial losses following the Fed's announcement, with the S&P 500 .SPX ending slightly higher, adding to a string of closing records.
And the nominal excuse for the Fed to hold the line on further rates hikes for the time being - the series of hurricanes that have battered the southern United States and seriously disrupted economic activity - may have bought the Fed some useful time. Hurricanes Harvey, Irma, and Maria have devastated many communities, inflicting severe hardship. Some banks are expecting the Federal Reserve to announce that QT will begin in October, but the pace will still be a key detail. Some economists say they think the figure could end up around $2.5 trillion, still far above the $900 billion the Fed held in its portfolio in pre-crisis days. Those amounts will increase by $10 billion each quarter to a maximum of $50 billion.
"Clearly the Fed doesn't have answers on the 2017 low inflation weakness but they're still very sensitive to falling behind the curve so they want to stay in front of the inflation curve". Inflation has remained persistently below that level. But its stimulus efforts that have kept rates near historic lows since 2008 have failed to boost inflation.
Yellen said that she hadn't spoken recently with President Trump and wouldn't say whether she'd like to return to lead the Fed, or if he'd reappoint her as chairwoman.