The Federal Reserve set course for an increase in short-term interest rates as soon as September, as it expressed cautious optimism for the US economy following a sharp slowdown that struck in the first quarter of the year.

However, interest-rate projections from the Federal Open Market Committee signalled that the pace of tightening will be slow, as officials seek to quell fears of a spike in borrowing costs.

The Fed left its target range for the Fed funds rate at zero to 0.25 per cent, as expected, pegging it at the historic low at which it has stayed since 2008. A chart of interest-rate predictions from Fed officials pointed to two increases later this year, but the committee appeared to be heavily divided over whether that many hikes would be merited, with an increased number of policy makers advocating only one move.