Key equities indices in United States closed lower on Wednesday as the benchmark 10-year bond yields jumped after the release of the minutes of the Fed's January meeting. The yield on 10-year Treasuries rose to 2.94 per cent - a four-year high - at 4pm in NY.
All things being equal, higher interest rates bolster the dollar as holding the currency becomes more attractive. This was the last meeting chaired by Janet Yellen.
Investors will be closely watching Fed Chairman Jerome Powell's first appearance on Capitol Hill next week, and then the Fed's March meeting, for clues about whether even faster interest-rate hikes are in the works. "In the meantime, the Fed doesn't have the luxury to wait" if investors expect inflation to rise.
"The Fed's mantra is data dependent, and for now, the data continue to tell me two (rate hikes) is the likely appropriate path", said Harker, who does not have a vote on the Fed's policy-setting committee this year but who takes part in the panel's regular meetings.
According to the minutes, a number of officials had marked up their forecasts for economic growth in the near term, in view of the accommodative financial conditions, big tax cuts and solid domestic and overseas economic data.
The report shows most policymakers noted that a stronger outlook for economic growth raised the likelihood for what they called "a gradual policy firming".
Fed officials estimated economic growth at 2.5 per cent for 2018 in December.
The Fed's confidence in the economy's direction means the bank will likely follow through with expected interest rate increases meant to prevent to economy from overheating and bring monetary policy back in line with historic neutral levels.
The central bank has missed its 2 per cent inflation target for most of the past five years.
Many economists now expect four moves in 2018.
Noting a rise in business optimism, an increase in business investment, a strengthening labor market and an accelerating pace of economic growth, Quarles said the underlying fundamentals of the US economy are strong.
While FOMC participants said businesses they spoke to were "generally upbeat" about the economy because of tax cuts and an improving global economy, some Fed officials conveyed "considerable uncertainty" over how corporate tax cuts would spur business investment.