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The federal funds rate, which the Fed determines directly, sets the rate at which banks lend money to one another.

It's the fourth boost to the benchmark overnight rate in the last 12 months, and the first rate hike by the Fed under new Chairman Jay Powell. A sharp rise in wage growth reported in the government's January jobs report triggered fears that higher labor costs would lead to higher inflation and, ultimately, to higher interest rates.

The Federal Reserve will nearly certainly raise interest rates Wednesday at Jerome Powell's first meeting as chairman.

The move was the latest step away from years of stimulating the world's largest economy in the wake of the 2007-2009 financial crisis and recession. Wednesday's rate change is the sixth since 2015.

"The economic outlook has strengthened in recent months", the USA central bank said in a statement which followed its two-day meeting. Along with raising their growth forecasts, they declared in a statement that "economic activity has been rising at a moderate rate" and that "job gains have been strong in recent months". The central bank continues to project three rate hikes in 2018. But it raised its forecasts for hikes in 2019 and 2020, citing a stronger outlook on the economy. "That's why we are seeing a bit of a disappointment on the dollar side", said Minh Trang, senior foreign currency trader at Silicon Valley Bank in Santa Clara, California.

"I think by the time we get to the end of the year, we're more likely than not to get four", he told Business Insider.

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At a news conference after the meeting, Powell said the Fed hasn't lowered its forecasts for growth because of the Trump administration's decision to impose tariffs on steel and aluminum imports.

Powell had quite a dramatic first day on the job. The Dow was up about 200 points. Hike too quickly, and you choke demand for borrowing and spending. He struck a careful tone in those appearances, saying he had upgraded his own economic outlook but saw no evidence yet of overheating in the economy.

"Many of the forces that acted as headwinds to U.S. growth and weighed on policy in previous years are generating tailwinds now", she said earlier this month in a speech pointing to the recent fiscal stimulus from tax cuts and higher spending.

But the forecast for inflation this year was left unchanged.

The reason for their cautious approach to raising interest rates is stubbornly low inflation. But officials were divided, with slightly less than half indicating they expect to raise rates at least four times this year. Rates are still historically low. They raised their estimate for growth in 2019 to 2.4 percent, up from 2.1 percent. It said officials expect the inflation rate to move up "in coming months". "The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2% inflation".

Ahead of the Fed announcement, 2-year Treasury note yields, which are highly sensitive to Fed policy expectations, hit their highest in more than nine years on Wednesday morning at 2.35 percent.