In an update to its economic forecast, the Federal Open Market Committee (FOMC), the Fed's monetary policy setting body, confirmed its forecast from June that its policy rate would average 2.4 percent this year, then 3.1 percent in 2019 and 3.4 percent in 2020, implying one final rate hike.
By 2021 the FOMC forecast the fed funds rate would remain steady at 3.4 percent and above the longer-run average rate of 3.0 percent, which was raised from June's forecast of. 2.9 percent.
The U.S. central bank has now raised its rate three times this year by a total of 75 basis points and eight times for a total of 200 points since December 2015 when it began tightening its policy.
In its accompanying statement, the FOMC repeated its view from August that the labor market had continued to strengthen, economic activity had been rising at a strong rate, job gains have been strong and the unemployment has stayed low while household spending and business investment had grown strongly.
The Fed also reiterated that further "gradual increases" in the target for the federal funds rate would be consistent with expanding economic activity, strong labour market conditions, and inflation that is near its symmetric objective of 2 percent.
But illustrating the U.S. economy is on a firm footing, a unanimous FOMC dropped its past description of its monetary policy stance as "accommodative."
Reflecting the boost to the U.S. economy from fiscal spending and tax cuts, the Fed raised its forecast for economic growth this year to 3.1 percent from a previous 2.8 percent, and the 2019 growth forecast to 2.5 percent from 2.4 percent.
For 2020 the growth forecast was unchanged at 2.0 percent and in 2021 growth is seen slowing to 1.8 percent, the longer-run average.
The U.S. economy has been picking up speed in the last five quarters, with annual growth of 2.9 percent in the second quarter.
Inflation is seen stable in coming years, with the Fed's preferred measure, personal consumption expenditure, averaging 2.1 percent this year, then 2.0 percent in 2019 and 2.1 percent in 2020 and 2012.
The U.S. consumer price inflation rate eased to a lower-than-expected 2.7 percent in August from 2.9 percent in July.
The U.S. dollar was little changed on the Fed's rate hike.
The Board of Governors of the Federal Reserve System released the following statement:
"Information received since the Federal Open Market Committee met in August indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low. Household spending and business fixed investment have grown strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Indicators of longer-term inflation expectations are little changed, on balance.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced.
In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 2 to 2-1/4 percent.
In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.
Voting for the FOMC monetary policy action were: Jerome H. Powell, Chairman; John C. Williams, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Lael Brainard; Richard H. Clarida; Esther L. George; Loretta J. Mester; and Randal K. Quarles."
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