WASHINGTON _ Federal Reserve officials on Wednesday forecast that economic growth will be faster through 2019 than they had expected in December before Congress enacted large tax cuts _ but signaled they did not plan to accelerate the pace of interest rate hikes this year to keep the economy from overheating.
Such an acceleration wouldn't come until 2019, when the Fed indicated it planned one more rate hike than it had forecast in December.
As widely expected, central bank policymakers on Wednesday announced a 0.25 percentage point increase in their benchmark short-term interest rate after the first rate-setting meeting presided over by new Fed Chairman Jerome H. Powell.
The fourth hike in a year, approved by a unanimous vote, brings the target range for the federal funds rate to between 1.5 percent and 1.75 percent.
"The economic outlook has strengthened in recent months," Fed officials said in the policy statement released after the two-day meeting. The last Fed policy statement in January did not include such a statement.
Fed officials said that "the labor market has continued to strengthen" although the pace of growth in household spending and business investment has moderated since the end of last year.
The median projection by Fed policymakers for economic growth this year increased to 2.7 percent from a 2.5 percent forecast in December, according to new estimates released Wednesday. That was consistent with recent statements by Powell and other Fed policymakers that the tax cuts had boosted their expectations for economic growth.
Projected growth in 2019 was bumped up to 2.4 percent from a 2.1 percent forecast in December. Despite the brighter view of economic growth, Fed officials held steady with their forecast for three total 0.25 percentage point interest rate hikes this year, including Wednesday's. They did indicate they planned to hike the rate three times again in 2019, compared with a December forecast of two rate hikes that year.
If the Fed holds to those projections, the federal funds rate would end 2019 at about 2.9 percent.
Given recent signs of increased inflation that triggered financial market gyrations, analysts have speculated the Fed might enact a total of four 0.25 percentage point increases this year. Powell has suggested that might happen when he was questioned at a congressional hearing on Feb. 27.
But Fed officials didn't raise any alarms about inflation in their policy statement. Their inflation forecast held steady at 1.9 percent for this year, just below the central bank's 2 percent annual target.
This week's Fed monetary policy meeting was the first gathering since the bout of market turmoil that began in early February because of fears that the large tax cuts and a big boost in federal government spending were pushing up prices too quickly.
If that happened, the Fed could increase the pace of interest rate hikes to keep inflation from getting too high. That would make stocks a less attractive investment compared to bonds.
On Feb. 5, Powell's first work day after taking over for Janet L. Yellen, the Dow Jones industrial average experienced its largest one-day drop, plunging 1,175 points. Three days later, it tumbled more than 1,000 points again.
The Dow and broader Standard & Poor's 500 index were briefly down 10 percent from their recent highs _ what's considered a market correction. But the Dow and S&P 500 have recovered most of those losses.
