USA companies are hiring at a rapid pace and consumer and business spending remains healthy, the Fed noted, and core inflation is finally expected to hit the central bank's target of 2 percent this year. USA growth is also getting a boost from $1.5 trillion in tax cuts and a $300 billion increase in federal spending, with inflation at the central bank's 2 percent target for two months.
It would be the seventh rate hike since late 2015, when the Fed first started the process of lifting interest rates from nearly zero.
The biggest change the Fed made Wednesday was to signal that it intends to do two more rate hikes this year, instead of just one.
"Household spending has picked up while business fixed investment has continued to grow strongly", the Fed said.
Jerome Powell, Chairman of the Federal Reserve System, will be delivering his remarks at a press conference following the 2-day meeting of the Board of Governors. Powell has repeatedly played down the dot plot as a guide to future interest rates, though investors continue to focus on it. It would allow the Fed to be less choreographed and more flexible in cutting or raising rates as economic conditions warrant. The Fed is looking for interest rates to rise to 3.4% by 2020, unchanged from the previous forecast.
The Fed now sees gross domestic product growing 2.8 percent this year, slightly higher than previously forecast, and dipping to 2.4 percent next year, unchanged from policymakers' March projections. Mr. Powell also serves as Chairman of the Federal Open Market Committee, the System's principal monetary policymaking body.
Officials lowered their jobless-rate estimates after unemployment fell to 3.8 percent as of May, matching April 2000 as the lowest reading since 1969. Inflation expectations are slightly higher this year compared to March's forecast of 1.9%.
The Fed's short-term policy rate, a benchmark for a host of other borrowing costs, is now roughly equal to the rate of inflation, a breakthrough of sorts in the central bank's battle in recent years to return monetary policy to a normal footing. Inflation for the next two years is expected to remain at 2.1%, unchanged from the previous forecast.
The core PCE index, which excludes food and energy and is seen by officials as a better gauge of underlying price pressures, is forecast to reach 2 percent this year and 2.1 percent in 2019 and 2020.