Bloomberg News - ECB’s Praet Warning of Oil Effects Signals Higher Chance of QE

European Central Bank Chief Economist Peter Praet warned in an interview with Boersen-Zeitung that lower oil prices increasingly risk de-anchoring inflation expectations, indicating that quantitative easing is becoming more likely.

Euro-area inflation will drop below zero “for a longer period” in 2015 amid a slide in the cost of crude, and the Governing Council “cannot simply look through” that, Praet said in commentspublished yesterday by the German newspaper. Inflation expectations are currently “extremely fragile” and the danger of second-round effects is “higher than usual,” he was cited as saying.

ECB policy makers are preparing to consider a proposal for large-scale asset purchases, including sovereign bonds, when they meet on Jan. 22. While Executive Board member Benoit Coeure has said that there’s broad consensus for new stimulus, officials including Germany’s Jens Weidmann have railed against the risks quantitative easing would entail.

The impact of oil prices, which have fallen by about half this year, was underscored by Spanish inflation data yesterday. Consumer prices slid 1.1 percent in December from a year ago, worse than forecast and the biggest drop since July 2009.

Praet said the ECB must “not be paralyzed” by the problems a QE program might create. Sovereign bonds are “the only kind of asset for which there is a significant market volume,” he said.

One sticking point in the debate is how to treat the risk of buying bonds of stressed nations. The prospect of renewed political turmoil in Greece, the country that triggered the debt crisis in 2009, has risen as snap elections in a few weeks could put anti-austerity party Syriza in power.

The rise of political parties opposed to structural adjustments is a “warning signal,” Praet said. “Populists in some countries promise fast and simple solutions but their proposals would be a complete disaster.”

To contact the reporter on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net

BBC News - CBI urges government to focus on cutting deficit in new year

Cutting the deficit should be the government's priority in 2015, the CBI has said, as it also calls for major changes to preserve public services.

The CBI tells the next government it must cut the deficit if it is to maintain the UK's economic improvement

In its new year message, the business lobby group says reducing the deficit is a "must" for whichever government takes power next year.

It hails the UK's economic performance which has left it the strongest among the G7 leading nations.

It also suggests a radical education reform to scrap GCSEs at the age of 16.

John Cridland, the CBI's director general, said: "We must sustain the best launch pad for the UK economy and our young people. Cementing Britain's reputation in the world as one of the best places to do business has to be a top priority for 2015.

"Our economy is among those enjoying the fastest growth among the G7 nations, with 1.2 million jobs created this year and employment set to grow in every region of the UK in 2015."

'Thousand cuts'

Mr Cridland continued: "For business leaders, deficit reduction is a must for the next government."

He said the easiest cuts to public services had already been made and the only way to bring down the gap between government spending and income was to take drastic steps to prevent public services suffering "decline through a thousand cuts".

The CBI suggests integrating health and social care, and a significant increase in services available online.

On education, Mr Cridland said the current system was leaving too many young people behind and he called for GCSEs to be replaced by a four-year learning plan between the ages of 14 and 18.

The BBC's economics correspondent Andy Verity says the CBI has long protested that its members have hundreds of thousands of unfilled vacancies for skilled jobs which it says young people could easily do if they were prepared at school.

Since 2012, the group has regarded the two years spent working towards GCSEs as an unwelcome distraction for 14 to 16-year-olds, especially those wanting to learn skills other than academic ones, our correspondent adds.

The CBI now says GCSEs should be abolished and replaced by tailored learning plans, with each pupil keeping up maths and English as well as a mix of either vocational or academic A levels, to be tested just once at 18.

On the future of Britain's place in the world, Mr Cridland said the majority of CBI members wanted the UK to remain within a reformed EU.

Bloomberg News - Ruble Swap Shows China Challenging IMF as Emergency Lender

Photographer: SeongJoon Cho/Bloomberg

By lending to nations shut out of overseas capital markets, Chinese President Xi Jinping is bolstering the country’s influence in the global economy and cutting into the International Monetary Fund’s status as the go-to financier for governments in financial distress

China is stepping up its role as the lender of last resort to some of the world’s most financially strapped countries.

Chinese officials signaled on the weekend they are willing to expand a $24 billion currency swap program to help Russia weather the worst economic crisis since the 1998 default. China has provided $2.3 billion in funds to Argentina since October as part of a currency swap, and last month it lent $4 billion to Venezuela, whose reserves cover just two years of debt payments.

By lending to nations shut out of overseascapital markets, Chinese President Xi Jinping is bolstering the country’s influence in the global economy and cutting into the International Monetary Fund’s status as the go-to financier for governments in financial distress. While the IMF tends to demand reforms aimed at stabilizing a country’s economy in exchange for loans, analysts speculate that China’s terms are more focused on securing its interests in the resource-rich countries.

“It’s always good to have IOUs in the back of your pocket,” Morten Bugge, the chief investment officer at Kolding, Denmark-based Global Evolution A/S who helps manage about $2 billion of emerging-market debt, said by phone. “These are China’s fellow friends and comrades, and to secure long-term energy could be one of the motivations.”

The ruble jumped 4.9 percent to 55.8 per dollar in Moscow on Monday after Hong Kong-based Phoenix TV cited China’s Commerce Minister Gao Hucheng as saying that expanding the currency swap between the two nations would help Russia.

Ukraine’s Allies

The ruble has gained 10 percent over the past two days, paring a selloff that’s made it the world’s worst performing currency over the past six months.

Unlike Ukraine, where the pro-west government received a $17 billion IMF-led bailout this year, Russia, Argentina and Venezuela are often at odds with the U.S. and its allies, essentially keeping them out of the reach of the Washington-based institution. At $3.89 trillion, China holds the world’s largest foreign-exchange reserves, allowing it to fill the void.

China and Russia signed a three-year currency-swap line of 150 billion yuan ($24 billion) in October, a contract that allows Russia to borrow the yuan and lend the ruble. While the offer won’t relieve the main sources of pressure on the ruble -- which has lost 41 percent this year amid plunging oil prices and sanctions linked to Russia’s annexation of Crimea -- it could bolster investors’ confidence in the country and help stem capital outflows.

Argentina Reserves

Two phone calls to China’s central bank seeking comment on the terms of its currency swaps weren’t returned. Russia isn’t in talks with China about any financial aid, Dmitry Peskov, a spokesman for President Vladimir Putin, said on Dec. 20.

Funding from China has helped raise Argentina’s foreign reserves to a 13-month high of $30.9 billion, a boost for a country that has been kept out of international capital markets since defaulting on foreign obligations in 2001.

Argentina received $1 billion worth of yuan earlier this month as part of the three-year currency-swap agreement with China, a central bank official in the South American country, who asked not to be identified because he isn’t authorized to speak publicly, said Dec. 11. That extended the funds transfered to Argentina to $2.3 billion since October. The swap is for a maximum of $11 billion over three years.

$21 Billion

In Venezuela, President Nicolas Maduro last month added $4 billion he borrowed from China to the country’s reserves after they fell to an 11-year low. The country now has about $21 billion in its coffers, equal to the amount of debt it has coming due in 2015 and 2016.

Venezuela, which was already plagued by shortages of everything from toilet paper to toothpaste, is also suffering from the drop in oil, its biggest export. Traders are betting that there’s an 89 percent probability that Venezuela won’t be able to make good on its debts over the next five years, according to credit-default swaps data compiled by Bloomberg.

“I don’t think this is a broad policy to support any country that asks for Chinese help,” Steffen Reichold, an economist at Stone Harbor Investment Partners in New York, said in an e-mail. “Several countries are currently in a tight spot and the Chinese are offering to help. That buys them some goodwill and influence, and promotes the use of the yuan.”

U.K., Australia

The People’s Bank of China has signed currency-swap agreements with 28 other central banks around the world, including those in the U.K. and Australia, making the yuan an alternative to the dollar for global trade and finance.

By promoting the use of its currency, China acts in its own interests as it challenges the dominance of the U.S. in the global economy.

Two months after Russia annexed Crimea in March, China signed a three-decade, $400 billion deal to buy Russian gas. Oil imports from Russia hit an all-time high in November, according to China’s General Administration of Customs. While the ruble’s depreciation affected Chinese exports to Russia and made it difficult for the two countries to implement joint projects, the challenges shouldn’t be exaggerated, according to a commentary published in the official People’s Daily newspaper today.

China has made $47 billion in loans to Venezuela since 2007, making it the country’s largest creditor, according to Eurasia Group, a political consulting firm. Venezuela, which holds the world’s largest oil reserves, repays the loans by shipping crude to China.

In July, Xi signed trade and investment agreements for at least $7.5 billion in Argentina, cementing China’s ties to the world’s third largest soybean producer.

“China is playing an increasingly more important role and is willing to engage,”Michael Ganske, who oversees $8 billion as the head of emerging markets at Rogge Global Partners Plc, said by e-mail from London. “There is geo-strategic importance connected with” the funding deals, he said.

To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.net

Reuters News - Exclusive: Arab OPEC sources see oil back above $70 by end-2015

A gas station attendant fills a customer's vehicle in Turnersville, New Jersey December 4, 2014.

CREDIT: REUTERS/TOM MIHALEK

(Reuters) - Arab OPEC producers expect global oil prices to rebound to between $70 and $80 a barrel by the end of next year as a global economic recovery revives demand, OPEC delegates said this week in the first indication of where the group expects oil markets to ‎stabilize in the medium term.

The delegates, some of which are from core Gulf OPEC producing countries, said they may not see - and some may not even welcome now - a return to $100 any time soon. Once deemed a “fair” price by many major producers, $100 a barrel crude is encouraging too much new production from high cost producers outside the exporting group, some sources say.

But they believe that once the breakneck growth of high cost producers such as U.S. shale patch slows and lower prices begin to stimulate demand, oil prices could begin finding a new equilibrium by the end of 2015 – even in the absence of any production cuts by OPEC, something that has been repeatedly ruled out.

"‎The general thinking is that prices can’t collapse, prices can touch $60 or a bit lower for some months then come back to an acceptable level which is $80 a barrel, but probably after eight months to a year," one Gulf oil source told Reuters.

A separate Gulf OPEC source said: "We have to wait and see. We don't see 100 dollars for next year, unless there is a sudden supply disruption. But average of 70-80 dollars for next year – yes.”

The comments are among the first to indicate how big producers see oil markets playing out next year, after the current slump that has almost halved prices since June. Global benchmark Brent closed at around $60 a barrel on Monday.

Their internal view on the market outlook will provide welcome insight to oil company executives, analysts and traders, who were caught out by what was seen by some as a shift in Saudi policy two months ago and have struggled since then to understand how and when the market will find its feet.

NOT AGAIN

For the past several months, Saudi officials have been making clear that the Kingdom’s oft-repeated mantra that $100 a barrel crude is a “fair” price for crude had been set aside, at least for the foreseeable future. At the weekend, Saudi Oil Minister Ali al-Naimi was blunt when asked if the world would ever again see triple-digit oil prices: “We may not.”

Saudi Arabia, the world’s biggest exporter – and its close Gulf allies within the Organization of the Petroleum Exporting Countries (OPEC) – say it’s time for others, whether that is countries like major exporter Russia or U.S. shale drillers, to slow down; OPEC can no longer slash output, ceding market share, to spare them a downturn.

As Naimi told the Middle East Economic Survey (MEES) in an interview this weekend: “It is not in the interest of OPEC producers to cut their production, whatever the price is.”

Without OPEC to defend prices, oil entered a free-fall, but most of OPEC’s members are holding fast.

At this point, intervening in the market would simply invite new rivals to carry on pumping crude, eroding OPEC’s market share without any guarantee of a sustained price recovery, another Arab oil source told Reuters on the sidelines of a meeting in Abu Dhabi of the Organization of the Arab Petroleum Exporting Countries (OAPEC).

"Every time prices fall, we would be asked to cut," the source said.

The second Gulf OPEC source reiterated that OPEC would not cut alone. Non-OPEC producers such as Russia, Mexico, Kazakhstan and "anyone producing more than one million barrels per day" should also cut or at least freeze their output if they wanted a stable market and better prices, the Gulf OPEC source said.

NO PRICE TARGET

To be sure, there is no suggestion that OPEC is targeting a specific price, or would want to do so. The group hasn’t had a formal price goal in about a decade, and Saudi Arabia has long maintained that it is only seeking price stability, not a set level.

But it offers a convenient metric at a time when traders are struggling to figure out where and when markets will settle down.

Asked about market signals OPEC is looking for to decide on whether the market is stabilizing or not, irrespective of the price, Naimi said: "‎The signals need time, one year, two years, three years. There is not one signal that we look to and say that's it... but for sure those who are the most efficient producers are the one who would rule the market in the future."

Iraqi oil minister Adel Abdel Mehdi told Reuters in an interview on Monday he thought prices would stabilize now at about $60 a barrel but could rise to over $70 by mid-next year.

"I believe that m‎arket has started to stabilize itself now," Falah al-Amiri, head of Iraq state oil marketing SOMO told Reuters in Abu Dhabi. 

"‎The future for next year, I don't think there would be much optimism in the market that the price would go to $80 or above. But I don't even think prices would reach $80," said Amiri, citing a resilient shale oil production to current prices.

BY RANIA EL GAMAL

BBC News - North Sea oil summit announced by Aberdeen City Council

A plan for a summit to look at the challenges facing the North Sea oil industry has been announced by Aberdeen City Council.

Council leader Jenny Laing said the UK and Scottish governments, trade unions and industry bodies needed "to get round the table as soon as possible".

The Labour councillor said a "strategic plan" was required to save jobs as the price of oil continued to fall.

Labour called on Nicola Sturgeon and David Cameron to attend the summit.

It comes after a warning that the UK's oil industry is in "crisis".

On Thursday, Robin Allan, chairman of the independent explorers' association Brindex, told the BBC that the industry was "close to collapse".

He claimed almost no new projects in the North Sea were profitable with oil below $60 a barrel.

However, Sir Ian Wood, another leading industry figure, said Mr Allan's warning was "well over-the-top and far too dramatic".

Sir Ian predicted conditions would begin to recover next year.

'Undermine confidence'

Ms Laing said Aberdeen was the oil capital of Europe and as such it was her job, as leader of the city council, to work with the governments in Edinburgh and Westminster and the oil industry to ensure jobs in the city were protected and companies remained based there.

She said: "I have today instructed Angela Scott, our chief executive, to arrange a summit between senior politicians, government officials, industry representatives, trade unions, and local politicians.

"The aim will be to ensure an agreement to develop a strategic plan to ensure job losses are either avoided or kept to a minimum.

"It must concern us all that the price of oil has dropped so heavily in such a short space of time and we need to agree a strategy to deal with fluctuations that undermine confidence in the North Sea."

Ms Laing said the council chief executive would write to various politicians within both the UK and Scottish governments, as well as UK Oil and Gas, other industry leaders and trade unions to encourage them to take part in the summit.

Scottish Labour has pledged to send its new leader Jim Murphy.

Fiscal changes

A Scottish government spokesman said it was continuing to do all that it can to support Scotland's oil and gas sector.

He added: "As we have long said, what the industry requires is a stable predictable fiscal regime, and that substantial tax incentives are needed to achieve the objective of maximising recovery.

"Unless the UK government acts to bring in further measures, the likelihood is some fields will cease production early."

The UK government's Department of Energy and Climate Change said it was important to highlight that there was "very little evidence of new projects being cancelled or deferred in reaction to lower oil prices".

A spokesman added: "The government recognises the challenges currently faced by the oil industry and that's why earlier this month the Treasury announced a package of fiscal changes and initiatives to stay on the front foot in dealing with them.

"We understand the particular concerns recent sharp reductions in oil prices have raised for companies active in the North Sea and will continue to engage with the Scottish government on this issue, including at this summit."

Bloomberg News - Russia Forcing Swiss Hand Depletes Arsenal to Fight ECB Stimulus

Photographer: Gianluca Colla/Bloomberg

Lights illuminate the facade of the Swiss National Bank's headquarters in Bern.

The Swiss National Bank’s resort to negative interest rates leaves President Thomas Jordan wielding a weaker hand when the European Central Bank ramps up stimulus.

Swiss central bank officials are now bracing for a month of currency speculation as the Russian crisis simmers on and a potential ECB quantitative easing decision on Jan. 22 threatens further pressure on the franc. While the SNB can toughen its response, any further action will probably lack the shock factor unleashed with yesterday’s deployment of a charge on deposits.

“The SNB’s arsenal has been reduced significantly,” said Julien Manceaux, an economist with ING Bank NV in Brussels. “On rates it can’t go too low, as this would cause imbalances in the domestic market, and a significant increase of the balance sheet would probably be politically difficult.”

The SNB, which created the franc ceiling in 2011, has dramatically stepped up its policy defense with a tool not used in Switzerland since the 1970s after the Russian crisis reached its borders with a deluge of investment inflows. In addition to the 0.25 percent deposit charge, officials ended a two-year hiatus on currency purchases to shield the 1.20-per-euro cap.

While the franc plunged 0.7 percent against the euro on the SNB’s announcement in Zurich yesterday, it reversed more than half the drop within hours. Jordan, renewing his pledge to defend the minimum exchange rate with “utmost determination,” insisted markets simply need time to understand what happened.

Think About it

“I don’t think the national bank used up its ammunition too early,” he told reporters in Zurich. “Many market participants have yet to fully comprehend the measures -- how strong and how drastic they will be, and what a burden they will pose on large account holders.”

Aside from further currency purchases to defend the franc, Swiss officials can tweak the deposit charge by either increasing it or by enforcing it more strictly.

“It’s hard to see what more they can do apart from using both instruments further,” said ING Bank’s Manceaux.

With negative rates not coming into force until Jan. 22, banks don’t need to react at once. Even so, Jordan’s pledge on additional measures if needed might be tested on the same date the deposit charge kicks in, as it coincides with the ECB’s first rate meeting of 2015.

Euro Storm

That day, the euro zone’s policy makers are likely to consider a large-scale purchase program forgovernment bonds to meet their ambition to swell the ECB balance sheet by 1 trillion euros ($1.2 trillion). Such a stimulus flood weakening the single currency might raise the prospect of renewed pressure on the Swiss franc.

“The SNB is at the mercy of the ECB and is bracing for a euro storm with all measures,” said Janwillem Acket, chief economist at Julius Baer Group Ltd. in Zurich. “The fact that the SNB chose Jan. 22 tells me that they would have liked to wait but were put under pressure because of Russia. They knitted the two things together quite elegantly.”

The date also falls in the middle of the World Economic Forum in Davos, when all eyes will be on Switzerland anyway.

“The SNB said repeatedly that it was ready to act immediately if needed,” said Maxime Botteron, an economist at Credit Suisse Group AG. “By setting negative rates, policy makers are simply following through on what they’ve pledged.”

To contact the reporters on this story: Zoe Schneeweiss in Zurich atzschneeweiss@bloomberg.net; Jana Randow in Frankfurt at jrandow@bloomberg.net

Bloomberg News - Swiss National Bank Starts Negative Interest Rate of 0.25% to Stave Off Inflows

Photographer: Gianluca Colla/Bloomberg

The Swiss National Bank is imposing a charge of 0.25 percent on sight deposits, the cash-like holdings of commercial banks at the central bank, it said in a statement today. It is expanding its target range for the three-month Libor to minus 0.75 percent to plus 0.25 percent

Switzerland imposed its first negative deposit rate since the 1970s and threatened further action to stem a tide of money flowing from Russia’s financial crisis.

Swiss National Bank President Thomas Jordan cited the Russian turmoil as a “major contributory factor” for the surprise decision to introduce a charge of 0.25 percent on sight deposits, the cash-like holdings of commercial banks at the central bank. The SNB also lowered its target range for the three-month Libor in an attempt to push the rate below zero. It fell to minus 0.046 percent today.

The SNB move hints at the investment pressures that resulted after Russia’s surprise interest-rate increase this week failed to stem a run on the ruble. Swiss officials acted as the turmoil, along with the imminent threat of quantitative easing from the ECB, kept the franc too close for comfort to its 1.20 per euro ceiling.

When Interest Rates Go Negative

“What happens from here will depend in part on how the Russian crisis develops,” Jonathan Loynes, chief European economist at Capital Economics Ltd. in London. “We suspect that the SNB will soon have to follow up the rate cut with further bouts of currency intervention.”

Jordan said today the SNB resumed purchases of foreign currencies in the past few days after a two-year hiatus. Should additional measures be needed to protect its cap, the central bank will consider increasing the deposit charge or enforcing it more strictly, Jordan said, affirming policy makers’ commitment to defend the minimum exchange rate.

Franc Weakens

The franc weakened after the announcement, trading at 1.2041 per euro at 12:20 p.m. in Zurich. Against the dollar it fell to 97.64 centimes.

The Swiss currency was “experiencing renewed upward pressure vis-a-vis the euro in the last few days,” Jordan said. “Rapidly mounting uncertainty on the financial markets has substantially increased demand for safe investments. The worsening of the crisis in Russia was a major contributory factor in this development.”

The SNB said it expanded the target range for three-month Libor to a 100 basis-point band of minus 0.75 percent to 0.25 percent, with the aim of taking the rate into negative territory.

“The wide range of the new target for the policy rate is a clear hint that the policy rate could be pushed even further below zero if needed,” said Michael Saunders, an economist at Citigroup Inc. in London.

Charge Exemptions

The sight-deposit charge is subject to exemptions that will be set individually for each account holder. For banks subject to minimum reserve requirements, including UBS Group AG and Credit Suisse Group AG (CSGN), that will be 20 times the statutory minimum reserve requirement. Institutions without such obligations will be granted an allowance of 10 million francs ($10.2 million).

Negative rates will be imposed as of Jan. 22. The timing has caused speculation among central-bank watchers that the measure could be linked to the European Central Bank’s monetary-policy meeting scheduled for that day. Policy makers there are set to consider expanding debt purchases beyond covered bonds and asset-backed securities to prevent a deflationary spiral.

Jordan played down a potential link, saying that changes to terms and conditions on sight deposits required a 30-day notice period. An ECB spokesman declined to comment.

Switzerland last charged for deposits in the 1970s, when the government imposed negative interest rates on assets held by foreigners. The measure wasn’t very effective and can’t be compared to today’s decision, Jordan said.

“The SNB has responded to renewed crisis-induced capital inflows to Switzerland, while at the same time preparing for expected additional ECB measures,” said Christian Lips, an economist at NordLB in Hanover, Germany. “It should give the SNB some breathing space in its defense of the minimum exchange rate -- no more, no less.”

To contact the reporters on this story: Zoe Schneeweiss in Zurich atzschneeweiss@bloomberg.net; Jan Schwalbe in Zurich at jschwalbe6@bloomberg.net

BBC News - Rouble regains ground as trading remains nervous

Russia's rouble has regained ground from Tuesday's all-time low, although trading remains edgy and volatile.

It opened 4% lower on Wednesday, but then edged up. In early trading,one US dollar bought 66 roubles, far fewer than the record low of 79 on Tuesday.

The falls were sparked in part by fears of new Western sanctions against Russia for its stance on Ukraine.

Russia revealed it spent almost $2bn on Monday trying to intervene in the currency market.

The Russian Finance Ministry said on Wednesday it had begun selling off stocks of foreign currency in an attempt to stop a further slide in the value of the rouble.

It said the currency was "undervalued" but its words and actions have had little apparent impact.

A drastic 6.5 percentage point rise in Russian interest rates to 17% early on Tuesday also failed to halt the slide.

The rate rise, which was meant to strengthen the currency. helped it hit 58 to the dollar early on Tuesday. In later trading, however, the dollar at one stage bought as many as 79 roubles.

The rouble has lost more than half its value against the dollar this year, hit by cheaper oil and Western sanctions which have both weakened the Russian economy.

Reuters News - Fed faces big decision over a few choice words

U.S. Federal Reserve Board Chair Janet Yellen delivers her welcoming remarks before the European Central Bank, Federal Reserve Board and Federal Reserve Bank of New York Conference at the Federal Reserve in Washington November 13, 2014.

CREDIT: REUTERS/GARY CAMERON

(Reuters) - Federal Reserve officials will decide this week whether to make a critical change to their policy statement that would widen the door for interest rate hikes next year and effectively bet the United States will continue to shine in a gloomy global economy.

In one of the last major wild cards for financial markets in 2014, the U.S. central bank's policy-setting committee is to issue the statement and fresh economic forecasts on Wednesday at 2 p.m., following a two-day meeting. Fed Chair Janet Yellen will then hold a news conference at 2:30 p.m.

The U.S. economy has strengthened and jobs have been created at a faster-than-expected clip since the Fed's last meeting in October, when it repeated that benchmark rates were unlikely to rise for a "considerable time." Officials will have to decide whether to replace that phrase despite below-target U.S. inflation and economic weakness in Europe and Asia.

Top Fed officials have suggested mid-2015 is a reasonable time to start tightening monetary policy after six years of near-zero rates, and financial markets generally agree.

As investors search for clues on when and how aggressively the Fed might move, here are the key things to watch:

THE LIFT-OFF LANGUAGE

The Fed has been toying with dropping the "considerable time" phrase since at least September. In October, it restated the pledge but made clear that rates could rise sooner if economic data were strong, and later if they weren't.

If the phrase is dropped, as many Wall Street economists expect, the Fed could replace it with a pledge to be "patient" in an effort to prevent an abrupt market reaction that could throw off the economy's momentum.

If it is kept, as centrist Fed policymakers Dennis Lockhart and John Williams suggested last week, Yellen would have to explain the need for such caution in the face of falling unemployment and signs that wage growth is edging up.

HITTING THE INFLATION TARGET

There is no question the Fed is approaching its goal of full employment after years battling the recession and its aftermath, so it will need to somehow acknowledge that in the statement. Unemployment is at a six-year low of 5.8 percent and monthly job growth has averaged more than 250,000 over the last six months.

More troubling is the elusiveness of the Fed's other goal of 2 percent inflation. The Fed's preferred inflation measure stands at just 1.6 percent, and with global oil markets tanking, the dollar soaring, and the economies of Europe, Japan and China weakening, the threat is that it will slip further.

"To some at the Fed that's a chasm, to others it's a crack," said Carl Tannenbaum, chief economist at Northern Trust.

Many Fed officials expect any downward pressure on U.S. prices to prove temporary. The question is where Yellen stands.

FRESH FORECASTS FOR RATES, ECONOMY

The clearest hint of the Fed's plans could come in policymakers' fresh projections of how high rates should rise over the next few years. In September, they suggested the overnight federal funds rate could rise to about 1.25 percent by the end of 2015, and about 2.75 a year later.

Given U.S. economic growth in the last two quarters was the strongest in more than a decade, policymakers will also probably nudge up their GDP expectations for the next two years, and lower forecasts for inflation and unemployment.

(Reporting by Jonathan Spicer; Editing by Meredith Mazzilli)

BBC News - US House passes $1.1tn budget bill to avert shutdown

The US House of Representatives has passed a $1.1tn budget, hours before government was due to shut down at midnight on Thursday.

The House vote came hours before a midnight deadline

The Republican measure was passed by 219 votes to 206 after President Barack Obama had urged Democrats to support the budget.

It will fund most of the government until September 2015, but some areas will only receive short-term funding.

Republicans won control of both House and Senate in elections last month.

A relieved John Boehner, the Republicans' House leader, said: "Thank you and Merry Christmas."

Fifty-seven Democrats voted for the bill, but others were angry about the president's call for support of the Republican bill, with Democratic House leader Nancy Pelosi saying she was "enormously disappointed" at Mr Obama's position.

John Boehner: `"Thank you and Merry Christmas"

Immigration issue

The Republicans strongly oppose President Obama's immigration reforms and so the bill only funds the Department of Homeland Security until February.

Republicans hope that when the new Congress meets at the start of next year, they can force changes to the president's immigration plans.

The budget bill must now be passed by the Senate and sent to the president to sign into law.

A two-day extension of government funding was approved by the Senate on Thursday to give it time to pass the main budget.

Democratic House leader Nancy Pelosi criticised Mr Obama for supporting the bill

Senate Majority leader Harry Reid said that his chamber would begin looking at the legislation on Friday.

The bill funds the government at the same levels that were negotiated last December.

It also adds emergency funding requested by President Barack Obama, including funds to fight Ebola in West Africa and money for US air strikes against militant group Islamic State in Iraq and Syria.

As presented earlier in the week, the 1,600-page bill also includes a number of provisions intended to gain votes from both parties, including:

• increasing the amount an individual person can contribute to a national political party from $32,400 to $324,000
• blocking the District of Columbia from using its own funds to set up regulatory systems for marijuana legalisation
• measures that would significantly weaken financial regulations in the Dodd-Frank law, including restrictions on derivatives trading
• blocking certain Environmental Protection Agency (EPA) regulations
• cuts in the budgets of the EPA and the US tax agency
• increases in the budget for Wall Street regulation agencies, including the Securities and Exchange Commission.

A number of Democrats were unhappy at what they saw as unnecessary concessions made to Republicans in order to pass the bill.

"We don't like lobbying that is being done by the president or anybody else that allows us to... give a big gift to Wall Street," Democrat congresswoman Maxine Waters said.

For their part, several Republicans argued that the deal did not go far enough in putting curbs on President Obama's plan to grant work visas to millions of workers who had entered the US illegally.

The US government entered a partial shutdown during October 2013, after the two houses of Congress failed to agree a new budget.

That shutdown left more than 700,000 employees on unpaid leave and closed national parks, tourist sites and government websites.