The U.S. central bank left its key interest rates steady along with its level of asset purchases but pulled forward its forecast for raising rates to 2023 from 2024, reflecting the economic recovery and better jobs market from a successful roll-out of vaccines to combat the COVID-19 virus and strong policy support.
The Federal Reserve (Fed) left its target range for the federal funds rate at 0.0 to 0.25 percent, unchanged since two, rapid-fire rate cuts totaling 1.50 percentage points in March last year at the height of the pandemic.
In its statement, the Fed's policy-making body, the Federal Open Market Committee (FOMC), unanimously acknowledged the improved growth prospects for the U.S. and raised its forecast for growth this year to 7.0 percent from the March forecast of 6.5 percent.
Nevertheless, it added there are still risks to the outlook and those sectors of the economy most adversely affected by the pandemic remain weak even if they are improving.
In 2022 the U.S. economy is seen expanding 3.3 percent, unchanged from the previous forecast, and in 2023 by 2.4 percent, up from 2.2 percent. The unemployment rate is seen steadily falling from 4.5 percent this year to 3.8 percent in 2022 and 3.5 percent in 2023.
The Fed maintained its guidance for the fed funds rate to remain at the current level until the labour market reaches maximum employment and inflation is on track to reach 2 percent and moderately exceed that for some time.
It also confirmed its commitment to continue to boost holdings of Treasuries and agency mortgage-backed securities by a total of $120 billion a month until further progress has been made on its goals, with no reference to when it may begin to discuss a tapering of its asset purchases.
In his press conference, however, Fed Chair Jerome Powell said FOMC members were starting to turn their attention to scaling back bond purchasing, describing it as a "talking-about-talking-about meeting."
The Fed acknowledged rising inflation by raising its forecast for its preferred gauge - the core personal consumption expenditures (PCE) - in its latest projection to 3.0 percent this year from the March forecast of 2.2 percent.
Inflation in the U.S., and worldwide, has been rising in recent months as economies bounce back faster than expected from the pandemic, unleashing pent-up demand and pushing up a wide range of prices, especially food, metals and commodity prices.
In April, core PCE in the U.S. rose to 3.1 percent, the highest annual rate since July 1992.
Although the FOMC projects core PCE will ease to 2.1 percent in 2022 and remain at this level in 2023 - just over its 2.0 percent target - the forecast for the federal funds rate was raised sharply to 0.6 percent from the March forecast of 0.1 percent.
The Fed's so-called dot plot, which shows the rate forecast for individual FOMC members and regional Fed presidents, showed 7 of 18 members now look to raise rates in 2022, up from 4 in March.
But in 2023 a clear majority of 13 of the 18 FOMC members expect the rate to rise, up from only 7 in March, with the level of the fed funds rate in the dot plot indicating multiple rate hikes.
