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The Federal Reserve kept interest rates unchanged in its first meeting since President Donald Trump took office, but painted a relatively upbeat picture of the US economy that suggested it was on track to tighten monetary policy this year.
The central bank said job gains remained solid, inflation had increased and economic confidence was rising, although it gave no firm signal on the timing of its next rate move.
"Measures of consumer and business sentiment have improved of late," the Fed said in a unanimous statement following a two-day policy meeting in which it left its benchmark interest rate in a range of 0.50 per cent to 0.75 per cent.
Fed policymakers also highlighted that unemployment was still hovering near its recent low. The unemployment rate is currently 4.7 per cent, at or near the level many policymakers consider to be full employment.
The central bank raised rates in December for only the second time in a decade and forecast three rate increases in 2017. The Fed is still awaiting clarity on the possible impact of Trump's economic policies.
Last month, Fed chair Janet Yellen underscored that with the economy near full employment, the Fed risked a "nasty surprise" on inflation if it is too slow with rate hikes.
"Inflation increased in recent quarters but is still below the committee's 2 per cent longer-run objective," it said in the statement overnight. "Market-based measures of inflation compensation remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance."
On Monday, the Commerce Department reported an uptick in inflation to 1.7 per cent.
The Fed once again said it sees a gradual path for rate rises. "The committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data."
Investors had all but ruled out a rate increase this week, given the uncertainty surrounding Trump's fiscal and trade policies and how they would affect the Fed's outlook.
Trump's promises on infrastructure spending, tax cuts, regulation rollbacks and a renegotiation of trade deals could quickly spur higher inflation, which may necessitate a faster pace of rate hikes.
The businessman-turned-politician has offered few details on his economic plans or a timeline for their rollout, while the announcement of policies viewed by many as protectionist and an immigration crackdown have caused market jitters.
Reuters