The Federal Reserve on Wednesday raised interest rates for the second time in three months, citing its confidence in a growing U.S. economy and strengthening job market.
The U.S. central bank has lifted its benchmark lending rate by a quarter percentage point to a target range of 1.00 percent to 1.25 percent, with another hike expected this year.
Yellen: "It reflects the progress the economy has made."
Explaining the interest hike, Fed Chair Janet Yellen said it signals the "progress" in the economy, which appears to have "rebounded" after slowing in the first three months of 2017.
A pick-up in global growth is helping U.S. exporters, she said, adding that the job market will probably strengthen further.
On inflation, she credits one-off factors for the recent slowdown in inflation.
And the Fed continues to expect gradual increases in borrowing costs will be needed to keep inflation close to target, while sustaining the economic expansion.
Outline of balance sheet shrinking released
In another sign of confidence, the Fed outlined its plan to start selling off some of the assets bought during its stimulus program during and after the 2007-2009 financial crisis and economic recession.
Yellen confirmed that the Fed will take a cautious approach, initially selling six billion U.S. dollars of Treasury bonds and four billion U.S. dollars of mortgage-backed securities a month.
This cap, which is expected to begin later this year and rise every quarter, will avoid any "market strains", she added.
Wall Street steady after rate hike decision announced
U.S. stocks were little changed after the central bank announced the widely expected decision to raise the benchmark interest rate.
The Dow Jones industrial average ended about 45 points higher, up 0.22 percent, while the S&P 500 slipped 0.1 percent, and the Nasdaq declined 0.41 percent.
Chinese market react mixed as analysts say impact is limited
The Chinese stock market opened mixed on Thursday, following the Fed's interest rate move.
The benchmark Shanghai Composite Index opened low, down 0.16 percent but later rebounded, 0.11 percent lower at 3,127.19 as of Thursday noon. The smaller Shenzhen Component index opened 0.11 percent lower and hiked to 0.42 percent higher at 10,162.09 by noon.
Short-term volatility could be expected in the Chinese market, analyst believe, but the long-term impact will be quite limited.
Zhao Qingming, chief economist at China Financial Futures Exchange Research Institute, said the impact of the Fed's rate hike on China can be ignored.
The Hong Kong Monetary Authority raised its base rate by 0.25 percentage points to 1.5 percent on Thursday morning following the U.S. move.
The HKMA, Hong Kong's de facto central bank, is obliged to follow U.S. interest rates as Hong Kong's currency is pegged to the U.S. dollar.