And a majority of policy makers said they now expect a total of four interest rate increases this year.
Announcing the decision to increase its target for the fed-funds rate to a range of 1.75% to 2%, the Fed described the U.S. jobs market as "strong" and said economic activity had been rising at "a solid rate".
"Job gains have been strong, on average, in recent months, and the unemployment rate has declined", the Fed said in its latest policy statement. Fed officials had been split about whether to raise rates three times this year or four.
The Fed announcement helped resolved a debate in financial markets over whether the Fed under Jerome Powell, who succeeded Janet Yellen as chairman in February, might see a need to signal a possible acceleration in rate hikes. Should the Fed's expectations prove accurate, its rate policy would then be meant to slow the economy.
In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective.
The Federal Open Market Committee indicated that even though it's stepping up the pace of interest-rate hikes, economic growth should continue apace.More news: Italy's new government sends immigration message by rejecting rescue ship
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Following the Fed's rate decision, the FOMC releases its statement regarding monetary policy.
The central bank also lifted its growth forecast to 2.8 percent this year, up a small amount from its projection of 2.7 annual growth in March.
The unemployment rate is 3.8%, the lowest since 2000 and tied for the lowest reading since 1969. "Economic activity has been rising at a solid rate".
Rates for conventional mortgages are likely to see more gradual change.
Interest rates are going up again as the economy gets hotter.
The policy statement bypassed discussion about the tensions over the Trump administration's trade policies, including a decision two weeks ago to impose tariffs on steel and aluminum imports from the European Union, Canada and Mexico.