Federal Reserve Chair Janet Yellen
US Federal Reserve chair Janet Yellen has hinted that interest rates will go up this year - but graduallyReuters

The US Federal Reserve has hinted that with the economy growing after a winter slump, an interest rate rise is on the cards sooner rather than later.

Analysts now expect the first rise to come in September.

However, after the Federal Open Market Committee monthly policy meeting on 16 and 17 June, chair Janet Yellen cautioned: "Economic conditions are currently anticipated to evolve in a manner that will warrant only gradual increases in the target federal-funds rate."

After the meeting, the central bank suggested it might raise rates only once in 2015, by a quarter of a percentage point, rather than the half a percentage point that had been forecast. By December 2017, the Fed expects its benchmark short-term interest rate to remain below 3%, still much lower than it has been for 50 years during an economic expansion.

"My colleagues and I would like to see more decisive evidence that moderate pace of economic activity can be sustained," Yellen said at a post-meeting press conference. "I want to emphasise sometimes too much attention is placed on the timing of the first increase in the federal-funds rate. What should matter to market participants is the entire expected trajectory of policy."

However, she added: "It would be wrong if we were to provide you a road map."

The Fed statement said: "Economic activity has been expanding moderately. The pace of job gains picked up while the unemployment rate remained steady. On balance, a range of labour market indicators suggests that under-utilisation of labour resources diminished somewhat."

It added that although inflation was below its 2% objective, energy prices had stabilised after driving inflation down.

The central bank has lowered expectations for economic growth in 2015 after accounting for the weak start to the year. But 15 of 17 Fed policymakers still indicated the first rate hike should take place this year, no change from their previous set of predictions. For 2016, the forecast is down to 1.625% from 1.875% in March. The estimate for 2017 has dropped to 2.875% from 3.125% in March.

"I think the economy is ready," Glenn Kelman, chief executive of Redfin, a national real-estate brokerage based in Seattle, told the Wall Street Journal. "I think cheap credit has caused home prices to accelerate faster than they otherwise would have."

"We see a lot more strength in the economy today than we saw several years back," Jack Hartings, chief executive of Peoples Bank of Coldwater, Ohio, told the WSJ. "From that perspective, we should be ready for it," he said of the prospect of rate increases. He added that the bank's depositors, strained by low returns on certificate of deposit, were also prepared for rates to start rising.

Meanwhile, US stocks closed higher after the Fed statement. The Dow Jones Industrial Average added 31.26 points, or 0.17%, to close at 17,935.74. The Standard & Poor's 500 was up 4.15 points, or 0.2%, to end at 2,100.44. The Nasdaq composite rose 9.33 points, or 0.18%, to finish at 5,064.88.