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Economy

Fed ratchets up rates, eyes 2 more hikes this year

Gradual acceleration of tightening seen pushing greenback higher

WASHINGTON -- The U.S. Federal Reserve raised interest rates for the first time in three months Wednesday and maintained its forecast of two more increases in 2017, continuing a shift toward tightening as inflation picks up.

The central bank lifted its target range for the federal funds rate by 25 basis points to between 0.75% and 1%. A post-meeting statement stressed that inflation has moved "close to the committee's 2% longer-run objective" in recent months. The unemployment rate has fallen below 5%, a level that Chair Janet Yellen and other Federal Open Market Committee members consider close to full employment.

The Fed maintained its median scenario calling for three rate increases in 2017, including Wednesday's. This would represent moderate acceleration from 2015 and 2016, which saw one hike each. Forecasts for the following two years also remained largely unchanged from December, with three hikes expected in 2018 and three or so in 2019.

The central bank could tighten policy faster if the massive tax cuts and infrastructure spending promised by new U.S. President Donald Trump fuel higher inflation, though the details and timing of the proposals have yet to be determined.

Rising interest rates will likely encourage appreciation of the dollar against such currencies as the yen as investors seek higher returns in America. Emerging markets that benefited from an influx of investment under the Fed's easy-money policies face the risk of capital flight and currency depreciation.

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