The US Federal Reserve has lifted its benchmark federal funds rate by 25 basis points for the third time in six months, a vote of confidence in the US economy and a reassuring signal for the world.

At a press conference on Thursday morning (Australian time), Fed chair Janet Yellen said the central bank continues to expect that “the ongoing strength of the economy will warrant gradual increases” to the important interest rate.

It was a signal the Fed believes the economic slowdown over the winter was temporary.

Ms Yellen downplayed the recent dip in inflation, attributing it to some temporary “idiosyncratic factors”, particularly price drops in internet plans and prescription drugs.

This is good news for Australia, which is heavily reliant on global growth.

The Fed’s announcement means its target for its benchmark interest rate, which influences consumer spending and business lending, will rise to between 1 and 1.25 per cent.

The Fed under Janet Yellen lifted the federal funds rate target by 25 basis points, to 1-1.25 per cent. Photo: AAP

The central bank has signalled it expects one more rate hike in 2017 and three in 2018, with the aim of gradually lifting its target to 3 per cent by the end of 2019.

The Fed also announced it plans to start gradually paring back its $4.5 trillion in financial securities, most of which it bought after the global financial crisis. This was aimed at pushing down bond yields in an attempt to stimulate consumer spending and business investment.

“The committee currently expects to begin implementing a balance sheet normalisation program this year, provided that the economy evolves broadly as anticipated.”

Unwinding the Fed’s balance sheet should cause long-term rates to rise, easing the global search for yield.

Unlike Australia, the Federal Reserve publishes the way its rate-setting committee votes. Thursday’s rate increase was approved 8-1.