"In view of realized and expected labor market conditions and inflation, the (Federal Open Market) Committee decided to raise the target range for the federal funds rate to 1-3/4 to 2 per cent," the central bank said in a statement on Wednesday after concluding a two-day meeting.
The Fed said the US labour market has "continued to strengthen" and economic activity has been "rising at a solid rate", with household spending picking up and business fixed investment growing strongly, Xinhua reported.
The Fed also said both overall inflation and so-called core inflation for items other than food and energy "have moved close to 2 per cent", suggesting that Fed officials are getting increasingly confident about inflation to reach its 2-per cent target.
In its latest forecast released on Wednesday, the central bank expected the U.S. economy to grow at 2.8 per cent this year, a little higher than 2.7 per cent estimated in March. The U.S. unemployment rate is expected to drop to 3.6 per cent by the end of the year, lower than 3.8 per cent previously estimated.
Fed officials envisioned four rate hikes this year, up from three estimated in March, according to the median forecast for the federal funds rate. Fed policymakers also penciled three rate increases in 2019 and one in 2020.
"We continued to believe that a gradual approach for increasing the federal funds rate will best promote a sustained expansion of economic activity, strong labour market conditions, and inflation near our symmetric two per cent goal," Powell said Wednesday at a press conference.
"We are aware that raising rates too slowly might raise the risk that monetary policy would need to tighten abruptly down the road in response to an unexpectedly sharp increase in inflation or financial excesses, jeopardising the economic expansion," he argued, adding the US economy could weaken and inflation could continue to run persistently below the 2-per cent target if the central bank raises interest rates too rapidly.
Wednesday's announcement marked the Fed's seventh rate hike of this tightening cycle beginning December 2015 and the second move under Powell, who took the helm of the central bank in February.
(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)