The US Federal Reserve has raised interest rates and forecast at least two more hikes for 2018, signalling growing confidence that tax cuts and government spending will boost the economy and inflation.
In its first policy meeting under new Fed chief Jerome Powell, the US central bank indicated that inflation should finally move higher after years below its two per cent target and that the economy had recently gained momentum.
The Fed also raised the estimated longer-term "neutral" rate, the level at which monetary policy neither boosts nor slows the economy, a touch, in a sign the current gradual rate hike cycle could go on longer than previously thought.
"The economic outlook has strengthened in recent months," the Fed said in a statement at the end of a two-day meeting in which it lifted its benchmark overnight lending rate by a quarter of a percentage point to a range of 1.50 per cent to 1.75 per cent.
Inflation "is expected to move up in coming months and stabilise" around the Fed's target, it said.
Stocks extended gains after the Fed decision while the dollar fell. Treasury yields initially rose before falling back to levels before the release of the statement.
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.
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