It was the broadest hint yet by the Federal Open Market Committee super-low interest rates must rise, probably in small increments, after more than three years of cuts.
Federal Reserve Chairman Alan Greenspan and his colleagues voted unanimously to leave the key federal funds target rate, which commercial banks charge each other overnight, at 1 percent.
But faced with evidence of a humming economy, a spurt in job creation and early price pressures, they scrapped a promise, first made in January, to be 'patient' before an interest rate rise.
Instead, they said, rates can rise at a measured pace.
"At this juncture, with inflation low and resource use slack, the committee believes that policy accommodation can be removed at a pace that is likely to be measured," the policymakers said.
Risks to the economy and inflation appeared to be balanced for the next few quarters, the committee said in a written statement.
But Greenspan and his colleagues took note of a slew of indicators that the world's biggest economy is bustling.
Latest data showed economic output grew by at a solid 4.2 percent pace in the first quarter of 2004.
Consumer spending rose 0.4 percent in March, home sales sizzled at the second-fastest pace on record in the same month, and factory orders surged by a near two-year record of 4.3 percent.
Most encouraging, employers added a four-year record of 308,000 jobs in March, and economists widely expect official data out Friday to show a gain of 165,000 jobs in April.
But several measures of inflation - the arch foe of the Federal Reserve - broke higher, with core consumer prices officially up by a three-year high of 0.4 percent in March.
"The evidence accumulated over the inter-meeting period indicates that output is continuing to expand at a solid rate and hiring appears to have picked up," the Federal Reserve policymakers said.
"Although incoming inflation data have moved somewhat higher, long-term inflation expectations appear to have remained well contained," the central banks said.
Greenspan has promised to take action if needed to check inflation, but he appears unconvinced that recent price increases are sustainable.
The 78-year-old central bank chief has said he is comforted by the apparent lack of pressure in wage costs, which have apparently been checked by stunning productivity gains.
The federal funds rate, stuck at 1 percent for more than 10 months, has helped in stirring the economy by enabling people to buy big items at low rates, and by enriching homeowners who were able to slash mortgage payments.
Policymakers had cut the federal funds target rate 13 times since January 2001, when it stood at 6.5 percent, to counteract the end of the Internet bubble, a recession, the September 11, 2001 attacks, corporate scandals and the Afghan and Iraq wars.