By Howard Schneider and Jason Lange
WASHINGTON (Reuters) - The U.S. Federal Reserve raised interest rates on Wednesday for the second time in three months, a move spurred by steady economic growth, strong job gains and confidence that inflation is rising to the central bank's target.
The decision to lift the target overnight interest rate by 25 basis points to a range of 0.75 percent to 1.00 percent marked a convincing step in the Fed's effort to return monetary policy to a more normal footing.
Fed Chair Janet Yellen pointed to growing faith in the economy's trajectory.
"We have seen the economy progress over the last several months in exactly the way we anticipated," Yellen said in a press conference following the end of a two-day policy meeting. "We have some confidence in the path the economy is on."
Stock markets extended gains <.SPX> and bond yields fell on the benign economic outlook and the continued steady path of rate rises signalled by the central bank. The dollar <.DXY> was trading lower against a basket of currencies.
However, they did not flag any plan to accelerate the pace of monetary tightening, with the policy-setting committee reiterating and Yellen emphasizing that future rate increases would be "gradual." At the current pace, rates would not return to a neutral level until the end of 2019.
"It relieves some of the fears we've had that perhaps the Fed was going to raise rates faster in the future. They've chosen not to signal that," said Brad McMillan, chief investment officer at Commonwealth Financial.
'NOT A CEILING'
Labor groups have urged the Fed to raise rates as slowly as possible so hiring can continue and wage increases take hold.
U.S. job gains have averaged 209,000 per month over the past three months, well above the 75,000 to 100,000 needed to keep up with growth in the working-age population. The jobless rate is 4.7 percent, at or near a level consistent with full employment.
The Fed projected that the unemployment rate would fall to 4.5 percent this year and remain at that level through 2019.
"This seemed like a good time to remind Americans that ... sometimes it (inflation) is going to be below 2 percent, sometimes it is going to above 2 percent," Yellen told reporters. "Two percent is not a ceiling."
Fresh economic forecasts released with the statement were largely unchanged from those of the December policy meeting and gave little indication the Fed has a clear view of how President Donald Trump's policies may impact the economy.
"We have not discussed in detail potential policy changes that could be put into place and we have not tried to map out what our response would be," Yellen said. "We have plenty of time to see what happens."
She added that she had held meetings with Treasury Secretary Steven Mnuchin, and met with Trump once since he took office.
The Fed's projections showed the economy growing 2.1 percent in 2017, unchanged from its December forecast. The median estimate of the long-run interest rate, where monetary policy would be judged as having a neutral effect on the economy, held steady at 3.0 percent.
Core inflation was seen as slightly higher at 1.9 percent versus the previous 1.8 percent forecast.
According to the policy statement, the risks to the outlook remained "roughly balanced."
Minneapolis Fed President Neel Kashkari was the only official to dissent in Wednesday's decision, saying he preferred to leave rates unchanged.
(Reporting by Howard Schneider and Jason Lange; Editing by Paul Simao and David Chance)
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)