2nd LD Writethru: U.S. Fed signals interest rate hike on track this year

The Federal Reserve signaled that it was on track to move the benchmark interest rate this year despite the lower-than-expected economic outlook.

In its quarterly economic projections, 15 out of the 17 Fed board members and Fed bank presidents expected the appropriate timing for the first interest rate hike in almost nine years will be in 2015, and only two officials saw 2016 will be the appropriate timing.

In the meantime, the Fed officials lowered their forecast for this year's economic growth to 1.8-2 percent, compared to its March projection of 2.3-2.7 percent. The revised-down figure mainly reflected the economic contraction in the first quarter, which was in part due to transitory factors, said Fed chair Janet Yellen at a press conference Wednesday.

Despite the lower-than-expected economic outlook, the central bank continues to see improvements in the labor market.

"Economic activity has been expanding moderately after having changed little during the first quarter," the Fed said in a statement after a two-day meeting of its Federal Open Market Committee (FOMC) on Wednesday, the Fed's chief body for monetary policy. The pace of job gains picked up and the underutilization of labor resources diminished somewhat, it added.

In the statement, Fed policymakers maintained the current near- zero rate for now and said a hike would be appropriate only after further improvement in the labor market and greater confidence that inflation would rise.

Market investors widely see September or even later as the most likely time for a Fed rate increase. The Fed has kept its benchmark short-term interest rate near zero since December 2008.

At the press conference, Yellen said that the importance of the initial increase should not be overstated. She emphasized that the stance of monetary policy will likely remain highly accommodative for quite some time after the first interest rate hike.

According to the Fed officials' projections, the appropriate federal funds rate at year end remained around 0.625 percent, while the projections for the rate in 2016 dropped to 1.625 percent, compared to their March median forecast of 1.875 percent, indicating a series of slow and gradual rate hikes in the future.

Although the Fed said labor markets continued to improve, unemployment rate is expected to be slightly higher at the end of the year than previously forecast in March. Inflation remains low but is expected to gradually rise to its 2 percent target over the medium term, the Fed said. Endite