The move, coming at the final policy meeting of 2017 and on the heels of a flurry of relatively bullish economic data, represented a victory for a central bank that has vowed to continue a gradual tightening of monetary policy.
Having raised its benchmark overnight lending rate three times this year, the US Fed projected three more hikes in each of 2018 and 2019 before a long-run level of 2.8 per cent is reached. That is unchanged from the last round of forecasts in September.
"Economic activity has been rising at a solid rate ... job gains have been solid," the Fed's policy-setting committee said in a statement announcing the federal funds rate had been lifted to a target range of 1.25 per cent to 1.5 per cent (see graph).
Officials acknowledged in their latest forecasts that the economy had gained steam in 2017 by raising their economic growth forecasts and lowering the expected unemployment rate for the coming years.
Gross domestic product is expected to grow 2.5 per cent in 2018, up from the 2.1 per cent forecast in September, while the unemployment rate is seen falling to 3.9 per cent next year, compared to 4.1 per cent in the last set of projections.
But inflation is projected to remain shy of the Fed's 2 per cent goal for another year.