Federal Reserve officials raised interest rates for the second time this year and upgraded their forecast to four total increases in 2018, as unemployment falls and inflation overshoots their target faster than previously projected. The Fed is raising rates gradually to keep the economy in check as inflation creeps higher and the job market grows even tighter.
It is the seventh time the bank has raised rates since 2015.
Fed Chairman Jerome Powell will hold a press conference at the conclusion of the two-day June meeting.
The statement retained language in place since late 2015 saying "policy remains accommodative".
Reichelt says that in the absence of change in the dot-plot, or a hawkish shift in Fed language, then currency markets will probably stick to their current view that U.S. interest rates may plateau as soon as next 2019, as the Federal Reserve takes the Fed Funds rate up to the so called neutral rate.
Rising interest rates typically lift the value of a currency by improving the relative value it offers to investors holding assets denominated in that unit, which can draw greater inflows of foreign capital into a nation while encouraging speculators to bid the currency higher.
The median estimate for economic growth this year rose to 2.8 percent from 2.7 percent in March, with projections unchanged for 2.4 percent in 2019 and 2 percent in 2020. That means that by then, it thinks its key rate will finally exceed the 2.9 percent it sees as neutral - as neither stimulating nor restraining growth. Powell has repeatedly played down the dot plot as a guide to future interest rates, though investors continue to focus on it.
On inflation, policy makers forecast a slight overshoot of their target starting in 2018 at 2.1 percent, and running through 2019 and 2020, compared with a 2020 overshoot in March's projections.
Inflation is also snapping into line, with fresh projections from policymakers on Wednesday indicating it would run above the central bank's 2 percent target, hitting 2.1 percent this year and remaining there through 2020.
The expectation of four rate hikes rather than three has increased amid rising inflation and a strengthening economy.
Growth is also expected to stay close to nearly 3 percent of GDP through the year, and Fed officials are eager to prevent the economy from overheating. Consumer and business spending is powering the economy, in part a result of the tax cut President Donald Trump pushed through Congress late previous year. Economic data since the May meeting has been strong, with unemployment falling to 3.8% in May and non-farm payrolls registering a 223k increase for the same month. Not since 1969 has the jobless rate been lower.
The economic expansion has survived for nine years and is now the second-longest in history. The more likely a slowing of the Fed rate hike cycle becomes, the more the tightening signals expected from the European Central Bank tomorrow are likely to be reflected in the EUR-USD exchange rate. This is partly why a rate hike is expected; the Fed usually only hikes when there are pressers so the chair can talk about the decision. All those countries have vowed to retaliate against any USA tariffs with their own penalties against US goods.
U.S. Treasury yields rose after the release of the statement while U.S. stocks were trading marginally lower.