Federal Reserve officials forged ahead with an interest-rate increase and additional plans to tighten monetary policy despite growing concerns over weak inflation.

Policy makers agreed to raise their benchmark lending rate for the third time in six months, maintained their outlook for one more hike in 2017 and set out some details for how they intend to shrink their $4.5 trillion balance sheet this year.

“Near-term risks to the economic outlook appear roughly balanced, but the committee is monitoring inflation developments closely,” the Federal Open Market Committee said in a statement Wednesday following a two-day meeting in Washington. “The committee currently expects to begin implementing a balance sheet normalization program this year, provided that the economy evolves broadly as anticipated.”

Policy makers also issued forecasts showing another three quarter-point rate increases in 2018, similar to the previous projections in March.

The Fed’s actions and words struck a careful balance between showing resolve to continue tightening in response to falling unemployment while acknowledging the persistence of unexpectedly low inflation this year.

“Inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the committee’s 2 percent objective over the medium term,” the statement said.

The committee had previously described inflation as close to their goal.

Economic Data

Data released earlier Wednesday showed that, on a year-over-year basis, the core version of consumer price inflation, which strips out food and energy components, slowed for the fourth straight month, to 1.7 percent in May. Following that news, the probability that the June hike would be followed by another increase this year dropped to about 28 percent from 48 percent, according to pricing in fed funds futures contracts.

In a separate statement on Wednesday, the Fed spelled out the details of its plan to allow the balance sheet to shrink by gradually rolling off a fixed amount of assets on a monthly basis. The initial cap will be set at $10 billion a month: $6 billion from Treasuries and $4 billion from mortgage-backed securities.

The caps will increase every three months by $6 billion for Treasuries and $4 billion for MBS until they reach $30 billion and $20 billion, respectively.

Officials didn’t reveal the exact timing of when the process will begin this year, as well as specifically how large the portfolio might be when finished.

The FOMC retained language that it expects to keep raising interest rates at a “gradual” pace if economic data play out in line with forecasts.

Yellen Remarks

Yellen is scheduled to hold a press conference at 2:30 p.m. where reporters are likely to ask, among other topics, about her outlook for rates and the balance sheet.

Wednesday’s decision brings the Fed’s target for the federal funds rate, which covers overnight loans between banks, to a range of 1 percent to 1.25 percent.

The vote was 8-1, with Minneapolis Fed President Neel Kashkari dissenting from a rate increase for the second time this year, preferring no change.

Quarterly projections for 2018 and 2019 showed Fed policy makers largely maintained their expected path for borrowing costs. The median forecast still has the central bank making three quarter-point increases in 2018; the end-2019 rate is seen at 2.9 percent, a slight change from 3 percent in the March projections.

The new forecasts may in part reflect changes in the FOMC since the last meeting, including the departures of Governor Daniel Tarullo and Richmond Fed President Jeffrey Lacker, and the arrival of new Atlanta Fed President Raphael Bostic.

In any event, interest-rate projections for 2018 and 2019 are becoming less reliable guides to future policy amid the likelihood that the Fed’s Board of Governors will see a major makeover in the next year.

The Fed has in recent weeks wrestled with contradictory signals from unemployment and inflation. Joblessness in the U.S. dropped to a 16-year low at 4.3 percent in May. Despite that, the Fed’s favorite measure of price pressures, excluding food and energy components, rose just 1.5 percent in the 12 months through April, down from 1.8 percent in February. The Fed’s target for inflation is 2 percent.

Inflation Projections

The recent economic developments prompted FOMC members to drop their median projection for inflation to 1.6 percent in 2017, from 1.9 percent forecast in March. The median forecasts for 2018 and 2019, however, were unchanged at 2 percent.

They also reduced slightly their estimate for the lowest sustainable level of long-run unemployment to 4.6 percent from 4.7 percent. That change, and the reduction in the 2017 inflation forecast, could reduce the urgency policy makers feel to hike rates again in coming months, especially if inflation remains soft.

“Job gains have moderated but have been solid, on average, since the beginning of the year, and the unemployment rate has declined,” the FOMC statement said.

Economic-growth projections were little changed, with the median forecast for 2017 moving to 2.2 percent from 2.1 percent.

The FOMC next meets in six weeks, on July 25-26. A Bloomberg survey of 43 economists conducted June 5-8 showed a median expectation for rate hikes in June and September, followed by the start of balance-sheet unwinding in the fourth quarter.

The Washington political world is in disarray. Britain’s election tumult has scrambled the outlook for Europe. And economies in the United States and abroad are plodding along at a pace that hardly suggests robust health.

Yet when the Federal Reserve meets Wednesday, it’s all but sure to raise its benchmark interest rate for the third time in six months _ a pace the Fed would normally adopt when it’s trying to slow an economy at risk of overheating.

So why the rush to keep raising rates?

Even with the economy growing sluggishly, the barometers the Fed studies most closely have given it the confidence to keep gradually lifting still-low borrowing rates toward their historic norms.

Though the Fed monitors the overall economy, its mandates are to maximize employment and stabilize prices. And hiring in the United States remains solid if slowing, with employment at a 16-year-low of 4.3 per cent _ even below the level the Fed associates with full employment.

Inflation has been more problematic, having long stayed below the central bank’s 2 per cent target rate. But Fed officials have said they think inflation, which has recently slowed further, will soon pick up along with the economy.

That said, no one expects the Fed to turn aggressive. If nothing else, the political fights and uncertainty in Washington _ over investigations into Russia’s ties to President Donald Trump’s campaign, health care legislation, tax cut proposals and about whether Congress will raise the nation’s borrowing limit and pass a new budget _ could lead the Fed to raise rates more slowly than it otherwise would.

“We are looking at a very messy summer in terms of policy in general, and that may cause the Fed to retreat to the sidelines for a while,” said Diane Swonk, chief economist at DS Economics of Chicago.

Uncertainty also surrounds the Fed’s policy committee’s membership. Trump is expected soon to fill three vacancies on the Fed’s influential board, and those new members, depending on who they are, could alter its rate-setting policy.

Given all that isn’t known, some analysts say an additional rate hike that they had expected in September, to follow the increase they foresee this week, might not happen until December.

“I don’t think there will be any retreat from the Fed’s desire to stay on course for gradual increases in interest rates, but the frequency of the increases may be spaced out over a longer period,” said Sung Won Sohn, an economics professor at the Martin Smith School of Business at California State University.

The CME Group’s tracking gauge shows that market traders see a 96 per cent probability that the Fed this week will raise its target for the federal funds rate _ the interest that banks charge each other _ from a range of 0.75 per cent to 1 per cent to a range of 1 per cent to 1.25 per cent.

The Fed had kept its benchmark rate at a record low near zero starting in late 2008 to try to boost consumer and business borrowing and lift the country out of the worst downturn since the 1930s. It raised the rate modestly in December 2015, then waited a year do so again. It acted again in March and has projected a total of three rate increases this year.

Fed officials have said they think the economy, now entering its ninth year of expansion, no longer needs the ultra-low borrowing rates they has been supplying. Besides stepping up its pace of rate increases, the Fed has also signalled that it’s pondering a plan to begin reducing its enormous portfolio of bonds. At the depths of the recession, the Fed began buying Treasury and mortgage bonds to try to depress long-term loan rates. That effort resulted in a five-fold increase in its portfolio to $4.5 trillion.

In a statement the Fed will release Wednesday _ and in a news conference by Chair Janet Yellen to follow _ officials may begin to disclose details of how they will begin to pare the bond portfolio, likely by slowing the reinvestment of maturing bonds.

The Fed has been buying bonds to replace those that are maturing and to keep its balance sheet from shrinking. Some analysts have suggested that the Fed will eventually allow a small amount of bonds to mature without being replaced _ an amount that would gradually rise as markets adjusted to the process.

Some news reports have mentioned leading candidates to fill the three vacancies on the Fed’s seven-member board. They include Randal Quarles, a top Treasury official in two past Republican administrations, for the vice chairman’s job of overseeing bank regulation. Marvin Goodfriend, an economist at Carnegie Mellon University, has been mentioned for another board spot, and Robert Jones, chief executive of Old National Bancorp in Indiana, reportedly is a candidate for a board seat designated for a community banker.

The betting is that the administration will choose officials who will tilt the Fed toward a more “hawkish” stance. Hawks tend to worry that rates kept too low for too long could escalate inflation or fuel asset bubbles. By contrast, “doves” favour the direction taken under Yellen, favouring relatively low rates to maximize employment.

“I think we are going to end up with a Fed that leans more in a hawkish direction,”’ said economist David Jones, the author of several books on the central bank. “The big question is what will they do about Yellen.”

Yellen, the first woman to lead the Fed, is serving a term that will end in February. So far, Trump has sent conflicting signals about whether he plans to nominate her for a second term.