The Federal Open Market Committee (FOMC) hiked its benchmark interest rate by a quarter point yesterday and announced that an additional hike was projected by year-end, while three more were penciled in for 2019.
Rates dropped late in the session after Fed Chair Jerome Powell said he does not see a buildup in fundamental inflation and does not anticipate prices surprising to the upside.
"The main thing where we might need to move along a little bit quicker if inflation surprises to the upside. We don't see that," Powell told reporters during his quarterly news conference Wednesday.
Fed members also decided to drop language saying that "the stance of monetary policy remains accommodative," a signal to some traders that the Fed considers itself closer to being done with regular rate hikes.
Markets had been watching closely to see whether the Fed would ditch the language, which was originally introduced years ago as the central bank lowered rates in an attempt to help pull the economy out of the financial crisis.
"The removal of 'accommodative,' on its face value may be a little puzzling because the Fed funds rate is still pretty low, around where inflation is," said James Kahn, a former vice president of the New York Fed and now chair of the economics department at Yeshiva University.
"It wouldn't surprise me if they pause at some point if things start to look a little more volatile. At least three increases next year will bring them close to 3 percent," Kahn added.
The Treasury Department auctioned $31 billion in seven-year notes at a high yield of 3.034 percent. The bid-to-cover ratio, an indicator of demand, was 2.45. Indirect bidders, which include major central banks, were awarded 62 percent. Direct bidders, which includes domestic money managers, bought 12.8 percent.
Coming up Thursday, Fed Chairman Jerome Powell is set to appear at Senator Reed's Rhode Island Business Leaders Day in Washington, DC.
Elsewhere, Dallas Fed President Robert Kaplan is expected to participate in moderated Q&A session on "What You Really Need to Lead" at the third annual banking and the economy forum for minorities in banking, which takes place in Charlotte, North Carolina.
In politics, President Donald Trump accused China of intending to interfere in November's congressional elections. He added, without providing evidence, that Beijing didn't want the Republican party to perform well.
This prompted an immediate rejection from the Chinese government, which said it didn't intrude on another country's domestic matters, Reuters reported.
Elsewhere, Trump criticized Canada for the slow pace of discussions concerning the overhaul of NAFTA.