The US economy is growing moderately after a winter swoon and likely strong enough to support an interest rate increase by the end of the year, US Federal Reserve officials indicated yesterday.

After contracting in the first quarter, the economy is now on track to grow between 1.8 per cent and two per cent this year, according to the central bank’s latest policy statement and new projections issued by Fed policymakers.

The Fed also said labour markets continued to improve, though with unemployment 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 two per cent target over the medium term, the Fed said.

Economic activity has been expanding moderately

Still, the statement and forecasts keep the Fed on track to raise rates once or twice over its four remaining policy-setting meetings in 2015.

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

“Economic activity has been expanding moderately,” the Fed said in its policy statement following a two-day meeting. “The pace of job gains picked up while the unemployment rate remained steady. On balance, a range of labour market indicators suggests that underutilisation of labour resources diminished somewhat.”

In their projections, Fed officials lowered expectations for GDP growth in 2015 after accounting for a weak start to the year. It was the second time since December that the central bank has downgraded its GDP forecast for this year.

In March, Fed policymakers had projected the economy to grow between 2.3 per cent and 2.7 per cent this 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.