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The Fed just raised interest rates again. Now things get interesting.

It may need to hike faster, if Trump’s tax cuts go through.

The Federal Reserve raised interest rates on Wednesday, in a move that every investor and economist in America saw coming because at least half a dozen Fed officials signaled it in advance. The top end of the target range for the Fed’s key rate — the rate big banks charge for short-term loans — is now 1 percent, safely above the land of near-zero rates that the US economy long inhabited in the slow recovery from the Great Recession.

At least two more rate hikes are almost certainly coming this year. As the Fed put it in a statement this afternoon: “The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate.”

That means officials are feeling good about economic growth, worrying more about inflation, and finally settling into a traditional monetary-policy-making groove after years of worrying that the economy wasn’t strong enough to handle a rate increase. They’re raising rates back toward historically normal levels — they exceeded 5 percent for most of the past half-century at a historically appropriate pace. They’re acting like a central bank that believes its economy has finally escaped the gravitational pull of the recession and begun to rocket away.

They probably shouldn’t get too comfortable there.

The current optimism is quite a contrast, even from a year ago, as my former colleague Neil Irwin wrote recently at the New York Times:

At the start of 2016, Fed officials were envisioning raising rates four times over the course of the year, but bond market prices suggested investors weren’t buying it and thought only one or two rate increases were on the way.

The markets were right. With some weak economic data and tumbling oil prices and volatile stock markets, the Fed stayed its hand.

The start of 2017 could hardly feel more different. Stock markets are booming, as are measures of consumer and business confidence. Economic data, including jobs numbers Friday, have been solid. Investors see a 60 percent chance that the Fed will raise rates three or more times this year, based on prices in futures markets Friday.

As further proof, look at stock indexes, which rose in the immediate wake of the announcement on Wednesday. Investors who were once terrified that the Fed might pull back on monetary stimulus now see the rate hikes as signaling confidence in the economy.

Growth outlooks are up, inflation is almost back to the Fed’s 2 percent target, and there appears to be lots of faith that all those factors could converge to deliver a lot of benefits across the economy.

It might not last. The Fed’s projections make it clear officials are zipping ahead with rate increases without factoring in any boosts to growth from the economic policies of the Trump administration. Notably, that means they aren’t expecting a big growth bump from tax cuts or regulatory rollbacks, as Trump has promised. Nor are they concerned about a possible inflation spike that could accompany fiscal stimulus at a time when the unemployment rate has fallen below 5 percent.

“We have not discussed the detailed policy changes that could be put into place” by Trump and the Republican Congress, Fed Chair Janet Yellen said in her press conference, “and we have not tried to map out what our response would be to particular policy measures.”

Some officials, Yellen allowed, have begun penciling in new policies and their effects on growth. She also allowed that those policies could push the Fed to accelerate its pace of rate hikes.

Let’s say what Yellen won’t: A big stimulus package — even one that is heavy on tax cuts — would almost certainly spur the Fed to hike faster. That could invite criticism from Trump. It could invite cheers from markets. It could just balance everything out and keep the economy humming along at full employment. It would be, in any case, a quick return to more dramatic monetary policy. The Fed won’t stay at cruising speed for long.

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