The Federal Reserve hiked rates by 25 basis points on Wednesday and indicated it would raise rates two more times this year, once more than market expectations before the announcement.
At the two-day meeting, the Federal Open Markets Committee (FOMC) voted to hike the Federal Funds target range to 1.75%-2% from the 1.5%-1.75% band, pointing to a stronger economic outlook.
The FOMC said in its statement the labour outlook has continued "to stengthen" along with economic activity improving at a "solid rate" and the unemployment rate declining.
It said: "The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2% inflation.
"The committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the committee's symmetric 2% objective."
Furthermore, the Fed removed forward guidance from its policy statement, "reflecting that policy normalization is proceeding broadly as we have expected", cutting its promise keep rates "below levels that are expected to prevail in the longer run" for "some time".
"Since we introduced that language a few years ago, the economy has strengthened, and the Committee has raised the federal funds rate from near 0 to 1-3/4 to 2 per cent.
"We expect to make further gradual increases in that rate. As a result, if the economy evolves broadly as we anticipate, the federal funds rate will, over the next year or so, move well within the range of estimates of the normal longer-run level. Therefore, we thought that now is an appropriate time to remove this forward guidance from our policy statement."
The FOMC said two more rate rises were necessary, meaning a total of four hikes this year. Before the meeting, markets were pricing in a 46.5% chance of two hikes this year.
Fed chairman Jerome Powell (pictured) commented: "The decision you see today is another sign that the US economy is in great shape."
This is Powell's second rate raise since taking over from Janet Yellen in February.
The more hawkish chair started off his tenure by hiking rates by 25 basis points to 1.75% in March, however, at the time he warned asset prices were "elevated in some areas".
It is the central bank's seventh interest rate increase since December 2015 when it began tightening monetary policy.
All eyes now turn to the European Central Bank (ECB) who are set to announce whether it will halt its €2.3trn asset purchase programme in September.
Neil Birrell, CIO at Premier Asset Management, warned on the impact on emerging markets, but said the US is "going to worry about itself, whether that be in trade discussions or interest rate policy".
"Emerging market currencies have suffered because of worries that their economies will struggle as US borrowing costs rise, but the Fed is unlikely to take into account economic conditions overseas when setting domestic policy," he said.
"The US economy remains robust; employment is strong, inflation at target and the fiscal stimulus is still kicking in."
Richard Carter, head of fixed interest research at Quilter Cheviot, said: "The decision by the Fed to raise interest rates came as no surprise to markets and is likely to be followed by at least one more hike before year-end.
"The US economy is firing on all cylinders, small business confidence is at 35-year highs and the Fed now has to guard against the dangers of overheating."
Lee Ferridge, head of multi-asset strategy, Americas at State Street Global Markets, said: "Speculation a fourth 'dot' would be added this year has been a consistent theme throughout 2018, but confirmation it will indicates the majority of the committee is less comfortable with this stance than previously suggested.
"This decision is only likely to add to the woes of emerging market currencies.
"It could also provide the US dollar with a renewed boost against its G3 counterparts as short-end interest rate differentials could widen further in the coming weeks."
Added to MSCI Emerging Markets index
Carbon tool will be rolled out to all its fund managers
Everyone should be held to account
TER of 0.55%
Struggled to attract new investment