The Federal Reserve left the benchmark interest rate unchanged on Thursday after its first policy meeting of 2018, but said it expects inflation to move up this year -- a possible signal of faster rate increases ahead.
In the last meeting of Fed Chair Janet Yellen's tenure, the policy-setting Federal Open Market Committee said while price measures have remained below the central bank's two per cent target, "inflation on a 12-month basis is expected to move up this year."
That change of language will fuel expectations that the US central bank could raise the key lending rate more than the expected three times this year.
In December, the committee said inflation was "expected to remain somewhat below two per cent in the near term."
The change in tone will certainly reinforce the view among analysts that the first rate increase of 2018 will come in March.
The debate will be over how many more steps the central bank will take this year, especially if the tax cuts approved in December stimulate the world's largest economy.
The two-day meeting saw the normal annual rotation on the committee as four new regional Fed bank presidents become voting members.
Many analysts predicted the shift would give a more hawkish tilt to the Fed's deliberations, given that the new voters tend to be more concerned about inflation threats.
Economist Ian Shepherdson of Pantheon Macroeconomics said the "stronger language on growth and inflation... sets up the March hike."
Other than the new phrasing on inflation, the FOMC largely repeated its analysis of the economic outlook, noting "the labor market has continued to strengthen and that economic activity has been rising at a solid rate."
And the statement repeated that "further gradual adjustments" in rates would allow continued moderate economic growth and strong labor conditions.
In December, the FOMC increased the key lending rate to 1.25-1.5 per cent, the third increase last year in the rate that affects all types of credit from mortgages to car loans.
The Fed's quarterly economic projections also released last month indicated the central bank is likely to raise the federal funds rate three times in 2018 and once in 2019.
But the minutes from the December meeting revealed the conflicting views about how fast the committee will need to move to stay ahead of price pressures at a time when strong job creation has pushed unemployment down to a 17-year low of 4.1 per cent.
Fed Governor Jerome Powell, tapped by President Donald Trump to replace Yellen, will be sworn in as chair on Monday, the Fed said in a statement. It will fall to him to decide whether to tighten monetary policy at a quicker pace.
The March meeting will be the first with Powell at the helm, and the first where he will give a press conference to explain the FOMC's thinking.
The Fed chair holds four press conferences a year, and the committee tends to make the interest rate moves at those meetings.
Yellen leaves the Federal Reserve after having overseeing a smooth US recovery and the cautious unwinding of a post- crisis stimulus program that critics had feared could unsettle markets and fuel inflation.
"Janet Yellen will leave on a high note," Diane Swonk, chief economist at Grant Thornton, wrote in a research note, citing her achievements in promoting diversity among policymakers and looking past unemployment rates in measuring labor markets.