The median estimate implied three increases in 2019 to put the rate above the level where officials see policy neither stimulating nor restraining the economy.
"The labour market has continued to strengthen. economic activity has been rising at a solid rate", the central bank's rate-setting Federal Open Market Committee said in its unanimous statement after the end of a two-day meeting. This assessment will take into account a wide range of information, including measures of labour market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and global developments.
They see another three rate increases next year, a pace unchanged from their previous forecast. 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 per cent target for two months.
The statement retained language in place since late 2015 saying "policy remains accommodative". Fed officials repeated their assessment that "risks to the economic outlook appear roughly balanced".
"Rising interest rates will start taking a toll on borrowers that are already stretched to the limit with tight household budgets", said Greg McBride, the chief financial analyst at Bankrate.com.
U.S. unemployment is already at 3.8 per cent, the lowest since 2000, and the Fed believes it will fall to 3.6 per cent by the end of the year, which would be the best rate since the 1960s.
While a few items remain on the USA central bank's wish list, such as bigger gains in wages and productivity, the main goals of stable prices and full employment are effectively met. US payrolls expanded by more than 1 million workers in the first five months of 2018, reaching the milestone faster than in the previous two years.
The Fed's pace of rate hikes for the rest of the year could end up reflecting a tug of war between a sturdy economy and the risks to growth, including from a potential trade war that could break out between the United States and such key trading partners as China, the European Union, Canada and Mexico. That compares with March's forecasts for 3.8 per cent this year and 3.6 per cent in the following two years.
"In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realised and expected economic conditions relative to its maximum employment objective and its symmetric 2 per cent inflation objective". The move reflects the economy's resilience, the job market's strength and inflation that's finally nearing the Fed's target level. Should inflation eventually pick up, the Fed might move to tighten credit more aggressively.
In comparison, the Reserve Bank kept Australia's official cash rate at 1.5 per cent, its record low for the past 20 months.
Inflation is also snapping into line, with fresh projections from policymakers on Wednesday indicating it would run above the central bank's 2% target, hitting 2.1% this year and remaining there through 2020. The committee's forecast for the long-run sustainable growth rate of the economy held at 1.8 per cent, suggesting policy makers are skeptical of the effect of tax cuts on the economy's capacity for growth.