The Federal Reserve has kept its benchmark interest rate unchanged but noted that inflation is nearing its 2 per cent target rate after years of remaining undesirably low.
The Fed ended its latest policy meeting on Wednesday by leaving its key short-term rate unchanged at 1.5 per cent to 1.75 per cent, the level it set in March after its sixth rate increase since December 2015.
The Fed is gradually tightening credit to control inflation against the backdrop of a tight job market, a resilient economy and a pick-up in consumer prices.
In a statement, the central bank said it expects "further gradual increases" in rates and says recent data show it's edging close to achieving its annual 2 per cent target for annual inflation.
"Inflation on a 12-month basis is expected to run near the committee's symmetric 2 per cent objective over the medium term," the Fed said.
The use of "symmetric" suggests that Fed officials might be willing to let inflation run slightly above its 2 per cent target for some time, given that inflation has run below the target for six years.
Analysts said the Fed's statement on Wednesday made it even clearer that it intends to resume raising rates at its next meeting in mid-June. And some Fed watchers said they interpreted the statement to suggest that the central bank foresees four hikes for 2018, up from the three it predicted in March.
Ben Ayers, senior economist at Nationwide, said he was increasing his forecast from three rate increases this year to four in the belief that the Fed will follow its hike in March with increases in June, September and December.
"With improved GDP growth expected over the rest of 2018, further declines in unemployment and inflation readings likely to trend higher, we expect the Fed to continue on its path of tightening monetary policy at roughly a 25 basis point increase per quarter through the end of 2019," Ayers said.
Stocks closed sharply lower, with the Dow Jones industrial average dropping 174 points. It wasn't clear to what extent the Fed's statement contributed to the pullback, though the prospect of an accelerated pace of rate increases could eventually weigh down a stock market that has long been supported by ultra-low rates.
The Fed's statement noted that the US job market has continued to strengthen along with a steady economy, now into its ninth year of expansion since the Great Recession ended.
"Job gains have been strong, on average, in recent months and the unemployment rate has stayed low," the statement said.
It did observe that household spending has slowed from a robust pace in the final months of 2017 and held back growth in the January-March quarter. But most economists expect a solid rebound, with the economy expanding at a 3 per cent annual rate or better, in the current April-June quarter.
The Fed's decision, which had been expected, came on an 8-0 vote. It was Jerome Powell's second meeting as chairman since succeeding Janet Yellen earlier this year. Powell in the past has signalled support for the gradual pace of rate hikes that Yellen oversaw.
The central bank is meeting as its board is undergoing a makeover, with a raft of new Trump appointees who appear generally supportive of the Fed's cautious approach to rates since the Great Recession ended.
