Fed hikes rates by a quarter point at Powell’s first meeting

The Federal Reserve raised interest rates on Wednesday and forecast at least two more hikes for 2018, signaling growing confidence U.S. tax cuts and government spending will boost the economy and inflation and lead to more aggressive future tightening.

In its first policy meeting under new Fed chief Jerome Powell, the U.S. central bank indicated that inflation should finally move higher after years below its 2 percent target and that the economy had recently gained momentum.

The Fed also raised the estimated longer-term "neutral" rate, the level at which monetary policy neither boosts nor slows the economy, a touch, in a sign the current gradual rate hike cycle could go on longer than previously thought.

"The economic outlook has strengthened in recent months," the Fed said in a statement at the end of a two-day meeting in which it lifted its benchmark overnight lending rate by a quarter of a percentage point to a range of 1.50 percent to 1.75 percent.

Inflation "is expected to move up in coming months and stabilize" around the Fed's target, it said.

The move was the latest step away from years of stimulating the world's largest economy in the wake of the 2007-2009 financial crisis and recession. The Fed tightened policy three times last year.

In January, the Fed left the key rate in a target range of 1.25 per cent to 1.5 per cent, after the final meeting of the central bank's monetary policy committee under departing chairwoman Janet Yellen.

The most recent interest rate hike was issued by the Fed in December.

The Fed had kept the benchmark interest rate at an all-time low near-zero range for seven years after the 2008 financial crisis, before starting to tighten monetary policy in December 2015.

Last year, the Fed began reducing its unprecedented bond holdings of more than 4 trillion dollars, by 20 billion dollars a month. The balance sheet had swelled by some 3.7 trillion dollars from 2008-14, during three rounds of "quantitative easing" in a post-crisis period of slow growth and minimal inflation.

Powell, a lawyer with a background in finance and banking, is the first non-economist to helm the Fed since the 1970s.