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Federal Reserve Hikes Interest Rates, Maintains Rate Outlook For 2018

As expected, the Federal Reserve on Wednesday raised the benchmark U.S. interest rate to a range of 1.25% to 1.5%, but struck a dovish tone on future rate hikes amid stubbornly low inflation.

It was the third rate hike of 0.25% in 2017.

Crucially, the Fed maintained earlier forecast for just three 1/4-point rate hikes in 2018.

"Averaging through hurricane-related fluctuations, job gains have been solid, and the unemployment rate declined further," the Fed's statement read.

"Household spending has been expanding at a moderate rate, and growth in business fixed investment has picked up in recent quarters."

However, while the economy is humming along nicely, the Fed said core inflation will continue to run below its 2% annual target in 2018.

On the economic outlook, the central bank estimates:

* unemployment to fall to 3.9% in 2018

* 2018 U.S. GDP forecast rises to 2.5% from 2.1%

* Fed sees PCE inflation for 2018 at 1.9%

At her final press conference, the Fed's outgoing Chair Janet Yellen said the Trump Administration's tax cut plan was the driving force behind the upgraded economic projection.

"Rates don't have to go up much further to get to neutral level," she added.

Two officials voted against the rate hike: Charles L. Evans, president of the Federal Reserve Bank of Chicago, and Neel Kashkari, president of the Federal Reserve Bank of Minneapolis cited low inflation concerns.

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