Fed sees slightly better growth this year

But the central bank did take historic action on Wednesday: It will begin undoing the extraordinary steps it took to prop up the economy for nearly a decade after the financial crisis.

Fed officials continue to expect the U.S. economy to expand at a moderate pace in the future. As the bonds mature, the Fed plans to spend less money each month to replace them, which reduces the balance sheet.

The portfolio includes Treasury and mortgage-backed securities that were acquired during and after the 2007-09 financial crisis in a successful program to prop up the economy.

Interest rate futures are now pricing in about a 70-per-cent chance of a December hike, according to CME's FedWatch tool, up from above 50 per cent prior to the Fed meeting.

The Fed's key interest rate - which underpins borrowing costs in the USA - is now between 1% and 1.25%.

USA economic data is likely to be affected in the coming weeks, however, by the impact of two hurricanes in the southern U.S. - most notably in the oil producing region of the Mexican Gulf and the state of Texas.

Central bankers pointed to signs of strength in the US economy, including a pickup in household spending and growth in business investments, in a statement following the Federal Open Market Committee's two-day meeting.

The policy statement and accompanying projections showed the Fed still in the middle of a balancing act between an economic recovery that has kept US unemployment low and is gaining steam globally and a recent worrying drop in USA inflation.

It cited past experience which has shown that "the storms are unlikely to materially alter the course of the national economy over the medium term".

Investors increased bets the U.S. An inflation rate of 2 percent is the Fed's general goal, and a benchmark for gauging economic health to raise rates.

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"China's credit problem is the biggest problem we have ever seen in any country and probably justifies a lower rating", said Claire Dissaux, head of global economics and strategy at Millenium Global Investments.

"We're working down our balance sheet, because we feel that's stimulus that in some sense is no longer needed", said Fed chairwoman Janet Yellen at a press conference after the Fed meeting. "I will not say that the committee clearly understands what the causes are".

European Central Bank President Mario Draghi is due to speak later on financial stability though focus will be on whether he give any more hints on the ECB joining the "Great Unwinding" as the influential Bank for International Settlement (BIS) has described it.

Economic growth in the USA has remained relatively robust into the third quarter, according to certain survey measures and hard data such as industrial and manufacturing production.

In its policy statement, the Fed took note of Hurricanes Harvey, Irma and Maria which it said had devastated many communities.

She speculates that markets are in a holding pattern mostly because the looming question about leadership at the Fed.

The market started this week amid increased expectations of one more interest rate hike in 2017. It added that the near-term risks to the economic outlook remained "roughly balanced" but said it was "closely" watching inflation.

However, the central bank said the economic impact of the storm is likely to be felt only in the near term.

If Trump chooses not to offer Yellen a second term - or if she declines, if asked - he would be able to name five of the Fed's seven board members in his first year in office.