Federal Reserve Chair Janet L. Yellen (Saul Loeb/AFP/Getty Images)

The Federal Reserve raised its benchmark interest rate by a quarter-point Wednesday, the third such increase in six months and a message of confidence in the strengthening of the U.S. economy.

The increase, which brought the Fed funds rate to between 1 percent and 1.25 percent, was highly anticipated by the markets. On Wednesday morning before the rate increase, Fed futures pointed to a 93.5 percent chance of a rate hike.

The rate hike "reflects the progress the economy has made and is expected to make toward maximum employment and price stability," Fed Chair Janet Yellen said Wednesday in a press conference.

The Fed also laid out plans to begin rolling back the more than $4 trillion balance sheet it accumulated in an effort to prop up the economy after the financial crisis. On Wednesday, Yellen said the process was designed to be as predictable and orderly as possible, and that the Fed hoped it would be as exciting as "watching paint dry."

The increase was the second rate hike this year and the fourth since the Federal Reserve began raising rates in December 2015. As such, consumers will begin to feel the impact of higher costs for lending — especially those with large mortgages or those who carry credit-card debt, said Greg McBride, chief financial analyst at Bankrate.

“For a lot of people, they don’t even notice,” he said. “But for those where budgets are tight and their debt burdens have been growing the last few years, this is where the signs of strain begin to emerge.”

The Fed described the rate hike as evidence of a stronger economy. It said that job gains had “moderated” but were still “solid, on average, since the beginning of the year.” As it has in previous months, it said its interest rate remains “accommodative,” meaning that it is still low enough to help fuel economic activity.

The Fed is mandated by Congress to consider two goals: Maintaining a healthy labor market where Americans who want jobs are able to find them, and restraining potentially destabilizing increases in prices.

The U.S. job market has been growing robustly, and the unemployment rate reached a 16-year low in May. Yet metrics of inflation, including the Fed’s favored measure, have consistently come in below the Fed’s target, convincing some that the Fed should put off future interest rate hikes.

In its news release Wednesday, the Fed said it expected inflation to remain somewhat below its 2 percent target in the near term but to eventually rise to meet that goal. It added that it was “monitoring inflation developments closely.”

“The rate hike signals that the Fed believes the economy is improving and is going to be resilient to those hikes,” said Tara Sinclair, a professor at George Washington University and a senior fellow at the jobs website Indeed.

During the press conference on Wednesday, Yellen argued that a gradual path of rate increases was the best way to avoid a more damaging scenario for the economy.

"We want to keep the expansion on a sustainable path and avoid the risk that ... we find ourselves in a situation where we've done nothing, and then need to raise the funds rate so rapidly that we risk a recession," she said. "But we are attentive to the fact that inflation is running below our 2 percent objective."

Board members didn’t alter their projections for the economy and their own actions much compared with what they had expected in March. They continued to predict one more rate increase this year, as well as three rate increases next year.

Their projections indicate that the Fed expects the economy to grow 2.2 percent in 2017 and 2.1 percent in 2018 -- far below the 3 percent growth that the Trump administration is targeting. Board members did lower their estimates for the unemployment rate and inflation, metrics that have consistently fallen below their expectations.

The Fed’s decision was nearly unanimous. Eight members of the deciding Federal Open Market Committee voted in favor of the rate increase. Only one, Neel Kashkari, the president of the Minneapolis Federal Reserve, voted against it.

The Fed also laid out a plan to gradually roll back its balance sheet before the end of the year, a change that many analysts expect could lead longer-term interest rates to rise, potentially raising costs for mortgage holders.

The Fed currently uses the principal from maturing bonds to buy new ones, but under the new plan, it will gradually phase that out. For Treasury securities, the Fed said it will begin reinvesting only those payments that exceed a cap of $6 billion a month, initially. Then it will lift the cap by $6 billion every three months over a period of a year, until the cap reaches a level of $30 billion per month.

For agency debt and mortgage-backed securities, the cap will be $4 billion per month initially, rising in steps of $4 billion every three months until it reaches $20 billion per month.

After that, the Fed plans to hold the caps in place “until the Committee judges that the Federal Reserve is holding no more securities than necessary.” Eventually, it said, the amount will decline to a level below that of recent years, but more than before the financial crisis.

Madhavi Bokil, a vice president at Moody’s Investor Services, said her group was closely monitoring information about how the Fed will roll down its balance sheet, to analyze what the effect might be on credit conditions. “We think that if the same gradual approach is followed, then any potential negative spillover would be limited,” she said.

Yellen said Wednesday that she would welcome the Trump administration's new appointments to the Federal Reserve board, and that she had not personally spoken with President Trump about her reappointment.

The Trump administration will have the opportunity to dramatically reshape the Fed through appointments. The Fed’s Board of Governors has three unfilled positions, and Yellen’s term as Fed chair and Stanley Fischer’s term as Fed vice chair expire early next year. Although Trump criticized Yellen during the campaign for holding rates low to benefit the Obama administration -- charges she denied -- since his inauguration he has suggested he may be open to reappointing her.

White House officials are reportedly close to nominating several people to fill vacant spots on the board, including former Treasury Department staffer Randy Quarles and economics professor Marvin Goodfriend.

On Wednesday, more than 30 House Democrats, including Rep. Rosa DeLauro (D.-Conn.) and Rep. John Conyers, Jr. (D.-Mich.) sent a letter to the White House criticizing some of the rumored choices for appointments to the Fed, in particular Goodfriend.

“It is disturbing that you are reportedly considering prospective Board of Governor nominees who have suggested narrowing or eliminating the Fed’s full employment mandate, or undermining the Fed’s ability to achieve full employment by requiring that the Fed adopt constraining, rules-based monetary policy,” the letter read.

See also: 

Fed forecasts rate hike ‘soon,’ details plan to trim balance sheet

Federal Reserve likely to begin cutting back $4.5 trillion balance sheet this year

The 6 million people the White House believes can balance its budget