In raising its benchmark overnight lending rate a quarter of a percentage point to a range of between 1.75 percent and 2 percent, the Fed dropped its pledge to keep rates low enough to stimulate the economy "for some time" and signaled it would tolerate above-target inflation at least through 2020.
The central bank raised the federal funds rate to a 1.75-2 percent target range, the second increase under Fed Chairman Jerome Powell.
Policymakers projected a slightly faster pace of rate increases in the coming months, with two additional hikes expected by the end of this year, compared to one previously.
"It is likely that market interests will focus on the considerations on neutral interest rate levels".
The new median forecast projects the Fed's benchmark rate at 3.1 percent by the end of 2019, up from 2.9 percent in the previous forecast. The unemployment rate is seen falling to 3.6 percent in 2018, compared to the 3.8 percent forecast in March.
The expectation of four rate hikes rather than three has increased amid rising inflation and a strengthening economy.
After two rate hikes in 2018, investors are focusing on the Fed's updated projections for increases during its remaining meetings for the year.
USA central bankers again emphasized on Wednesday that the goal is "symmetric", and they said in minutes of the May meeting that "a temporary period of inflation modestly above 2 percent" would help anchor long-run inflation expectations around the target. It also forecast an even lower unemployment rate of 3.5% for 2019 and 2020. The step was needed, the Fed said, to be sure rates stay within the intended boundaries. For 2020, the Fed foresees a median rate of 3.4 percent.
Growth is also expected to stay close to nearly 3 percent of GDP through the year, and Fed officials are eager to prevent the economy from overheating.
With employers hiring at a solid pace month after month, unemployment has reached 3.8 percent. It then raised rates once in 2015, once in 2016, three times in 2017 and now twice this year.
Analysts at Nomura say the positive economic data since the May meeting warrants an upgrade in expectations of how the Fed sees the forward trajectory for interest rates. When the Fed tightens credit, it aims to do so without derailing the economy. It will become the longest if it lasts past June 2019, at which point it would surpass the expansion that lasted from March 1991 to March 2001.
"The Fed's path of gradual rate hikes and slow (balance) sheet reduction seems well established at this point".
Trump's imposition of tariffs on steel and aluminum imports has enraged US allies. While the national economy appears to be on solid ground for 2018, the Fed must now consider how growing worldwide trade disputes could slow USA growth.
The Fed's meeting this week is to be followed by policy meetings of two other major central banks - the European Central Bank on Thursday and the Bank of Japan on Friday.
In a technical move, the central bank also chose to set the interest rate it pays banks on excess reserves - its chief tool for moderating short-term interest rates - at just below the upper level of its target range.