(Bloomberg) -- Federal Reserve officials forged ahead with aninterest-rate increase and additional plans to tighten monetarypolicy despite growing concerns over weak inflation.

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Policy makers agreed to raise their benchmark lending rate forthe third time in six months, maintained their outlook for one morehike in 2017 and set out some details for how they intend to shrinktheir $4.5 trillion balance sheet this year.

“Near-term risks to the economic outlook appear roughlybalanced, but the committee is monitoring inflation developmentsclosely,” the Federal Open Market Committee said in a statementWednesday following a two-day meeting in Washington. “The committeecurrently expects to begin implementing a balance sheetnormalization program this year, provided that the economy evolvesbroadly as anticipated.”

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Policy makers also issued forecasts showing another threequarter-point rate increases in 2018, similar to the previousprojections in March.

The Fed’s actions and words struck a careful balance betweenshowing resolve to continue tightening in response to falling unemployment while acknowledging thepersistence of unexpectedly low inflation this year.

“Inflation on a 12-month basis is expected to remain somewhatbelow 2 percent in the near term but to stabilize around thecommittee’s 2 percent objective over the medium term,” thestatement said.

The committee had previously described inflation as close totheir goal.

Economic data

Data released earlier Wednesday showed that, on a year-over-yearbasis, the core version of consumer price inflation, which stripsout food and energy components, slowed for the fourth straightmonth, to 1.7 percent in May. Following that news, the probabilitythat the June hike would be followed by another increase this yeardropped to about 28 percent from 48 percent, according to pricingin fed funds futures contracts

In a separate statement on Wednesday, the Fed spelled out thedetails of its plan to allow the balance sheet to shrink bygradually rolling off a fixed amount of assets on a monthly basis.The initial cap will be set at $10 billion a month: $6 billion fromTreasuries and $4 billion from mortgage-backed securities.

The caps will increase every three months by $6 billion forTreasuries and $4 billion for MBS until they reach $30 billion and$20 billion, respectively.

Officials didn’t reveal the exact timing of when the processwill begin this year, as well as specifically how large theportfolio might be when finished.

The FOMC retained language that it expects to keep raisinginterest rates at a “gradual” pace if economic data play out inline with forecasts.

Yellen remarks

Yellen is scheduled to hold a press conference at 2:30 p.m.where reporters are likely to ask, among other topics, about heroutlook for rates and the balance sheet.

Wednesday’s decision brings the Fed’s target for the federalfunds rate, which covers overnight loans between banks, to a rangeof 1 percent to 1.25 percent.

The vote was 8-1, with Minneapolis Fed President Neel Kashkaridissenting from a rate increase for the second time this year,preferring no change.

Quarterly projections for 2018 and 2019 showed Fed policy makerslargely maintained their expected path for borrowing costs. Themedian forecast still has the central bank making threequarter-point increases in 2018; the end-2019 rate is seen at 2.9percent, a slight change from 3 percent in the Marchprojections.

The new forecasts may in part reflect changes in the FOMC sincethe last meeting, including the departures of Governor DanielTarullo and Richmond Fed President Jeffrey Lacker, and the arrivalof new Atlanta Fed President Raphael Bostic.

In any event, interest-rate projections for 2018 and 2019 arebecoming less reliable guides to future policy amid the likelihoodthat the Fed’s Board of Governors will see a major makeover in thenext year.

The Fed has in recent weeks wrestled with contradictory signalsfrom unemployment and inflation. Joblessness in the U.S. dropped toa 16-year low at 4.3 percent in May. Despite that, the Fed’sfavorite measure of price pressures, excluding food and energycomponents, rose just 1.5 percent in the 12 months through April,down from 1.8 percent in February. The Fed’s target for inflationis 2 percent.

Inflation projections

The recent economic developments prompted FOMC members to droptheir median projection for inflation to 1.6 percent in 2017, from1.9 percent forecast in March. The median forecasts for 2018 and2019, however, were unchanged at 2 percent.

They also reduced slightly their estimate for the lowestsustainable level of long-run unemployment to 4.6 percent from

4.7 percent. That change, and the reduction in the 2017inflation forecast, could reduce the urgency policy makers feel tohike rates again in coming months, especially if inflation remainssoft.

“Job gains have moderated but have been solid, on average, sincethe beginning of the year, and the unemployment rate has declined,”the FOMC statement said.

Economic-growth projections were little changed, with the medianforecast for 2017 moving to 2.2 percent from 2.1 percent.

The FOMC next meets in six weeks, on July 25-26. A Bloombergsurvey of 43 economists conducted June 5-8 showed a medianexpectation for rate hikes in June and September, followed by thestart of balance-sheet unwinding in the fourth quarter.

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