WASHINGTON — The Federal Reserve has raised its benchmark interest-rate target for the first time since 2018, beginning a monetary tightening cycle aimed at slowing the fastest inflation in four decades while preserving a labor market that remains unusually strong.

The Federal Open Market Committee voted Wednesday to raise the federal funds target range by one-quarter percentage point, to 0.25% to 0.50%. In its policy statement, the committee said it anticipates that ongoing increases will be appropriate and expects to begin reducing the size of the Federal Reserve’s nearly $9 trillion balance sheet at a coming meeting.

The decision marks a major turn from the emergency policy adopted at the beginning of the pandemic, when the central bank cut rates close to zero and purchased large quantities of Treasury and mortgage-backed securities to stabilize markets and support the economy.

Inflation forces the Fed to change direction

Consumer prices rose 7.9% over the year through February, according to the Labor Department’s latest CPI report. Price increases are broad, spanning energy, food, shelter and many goods and services. Russia’s invasion of Ukraine has added new pressure through oil, natural gas, grain and other commodity markets.

The Fed’s challenge is that much of the inflation problem reflects both strong demand and constrained supply. Higher interest rates can reduce borrowing and spending, but they cannot directly produce more oil, semiconductors, housing or shipping capacity. Policymakers are therefore trying to cool demand enough to restore balance without causing an unnecessary recession.

The central bank’s Beige Book described businesses across the country facing elevated input prices, persistent labor shortages and continued supply problems. Many firms reported passing higher costs to customers, a sign that inflation has moved beyond a small number of pandemic-disrupted categories.

Officials signal a series of increases

New economic projections show most Fed officials expecting multiple rate increases this year. The March projections place the median expected federal funds rate well above its current level by the end of 2022, while also forecasting inflation to remain above the central bank’s 2% goal.

The projections are not a binding schedule. Each meeting will depend on incoming data, and the war in Ukraine has introduced additional uncertainty. But the message is clear: Wednesday’s quarter-point move is intended as the beginning, not the end, of policy normalization.

The Federal Reserve also issued an implementation note directing the New York Fed to conduct market operations consistent with the new target range and raising the interest rate paid on reserve balances to 0.4%.

Those technical changes matter because the Fed controls short-term market rates through the rates it pays on reserves and overnight instruments. The policy rate then influences a much wider range of borrowing costs, including mortgages, business loans, credit cards and eventually other financial assets.

A strong labor market gives policymakers room

The Fed is tightening into a labor market that remains far stronger than it was during the early pandemic. Employers added 678,000 jobs in February and unemployment fell to 3.8%, according to the employment report. Job openings remain high and many businesses continue to report difficulty hiring.

That strength reduces the immediate need for monetary support and increases concern that a very tight labor market could reinforce inflation through faster wage growth. At the same time, wages adjusted for inflation have been falling, meaning workers’ nominal pay gains are not fully protecting purchasing power.

Fed officials are attempting what economists often call a soft landing: reducing inflation without causing a sharp rise in unemployment. Achieving that outcome is difficult under ordinary conditions and more complicated now because supply shocks are being amplified by war, sanctions and volatile energy markets.

Markets now focus on the pace of tightening

The debate is shifting from whether the Fed will raise rates to how quickly it will move. Some policymakers may favor larger increases if inflation remains high or expectations begin to drift upward. Others may prefer quarter-point steps while assessing the effect of the war and the cumulative impact of tighter financial conditions.

The Guardian reported that the increase was widely expected but represents the beginning of a substantially less supportive policy environment after two years of emergency measures.

Balance-sheet reduction will add another layer of tightening. As the Fed allows bonds to mature without fully replacing them, its holdings will gradually shrink, potentially putting additional upward pressure on longer-term interest rates. Officials have not yet announced the exact pace.

For households, the effects will arrive unevenly. Savings rates may eventually improve, but borrowing will become more expensive. Mortgage rates have already risen in anticipation of Fed action. Businesses with floating-rate debt will face higher financing costs, and asset valuations that benefited from near-zero rates may come under pressure.

The Fed’s policy pivot confirms that inflation has become the dominant domestic economic problem. The labor market has recovered enough for policymakers to withdraw emergency support, but the central bank is beginning that process at a moment when war is creating new price shocks. The success of the strategy will depend on whether inflation can slow before higher borrowing costs materially weaken employment and growth.