The Fed set the stage for a series of rate increases beginning next spring, completing a policy pivot that showed much greater concern about the potential for inflation to stay high.

Most central-bank officials, in projections released on Wednesday at the conclusion of their two-day meeting, penciled in at least three quarter-percentage-point rate increases next year. In September, around half of those officials thought rate increases wouldn't be warranted until 2023.

For months, Fed leaders stuck to a view that stronger price pressures this year were caused primarily by supply chain bottlenecks and would ease on their own. But Fed Chairman Jerome Powell in recent weeks signaled much less conviction about that forecast, and the projections Wednesday suggest most of his colleagues share his concern.

Stocks closed higher as investors welcomed the Fed's messages. The S&P 500 rose 1.6%, reversing earlier declines and ending the day near a record. The Dow Jones Industrial Average added about 383 points or 1.1%. The Nasdaq Composite Index surged 2.2%. Treasury yields rose as well.

One immediate sign of officials' increased urgency: They approved plans that will more quickly scale back their pandemic stimulus efforts, ending a program of asset purchases by March instead of June. That opens the door for them to start raising rates at their second scheduled meeting next year, in mid-March. The Fed wants to end the asset purchases, a form of economic stimulus before it lifts its short-term benchmark rate from zero to prevent inflation from staying too high.

"A decision to taper faster says something about your desire to raise rates," said Michael Gapen, chief US economics at Barclays, who expects Fed will increase rate in March. "There is no reason to taper faster unless you want to get to rate hikes sooner. That's the only reason you'd want to do it."

The shift is the latest sign of how acceleration and broadening of inflationary pressures, together with signs of an over the tighter labor market, have reshaped officials' economic outlook and policy planning.

"There is a real risk now, I believe, that inflation may be more persistent and...the risk of higher inflation becoming entrenched has increased," said Mr. Powell at a news conference Wednesday afternoon. "That's part of the reason behind our move today, is to put ourselves in a position to be able to deal with that risk."

Fed officials in early November agreed to reduce their then $120 billion a month in bond purchases by $15 billion a month, to $90 billion this month. On Wednesday, officials said they will accelerate their wind-down beginning next month, reducing purchases by $30 billion a month. As a result, they will purchase $60 billion in Treasury and mortgage securities in January, putting the program on track to end by March.

"If they could wave a wand, I think they would want to stop it altogether because it's not needed in the economy at this point," said Kenneth Rosen, housing economist at the University of California, Berkeley. "There's so much money flowing through every single asset class."

Officials in their post-meeting statement described their goal of inflation moderately exceeding their 2% target as being met, one of two key criteria the central bank laid out to justify raising rates. Officials said they hadn't yet met the other criteria, in which labor-market conditions are consistent with maximum employment.

But Mr. Powell suggested that goal might be achieved soon. "We are making rapid progress toward maximum employment," he said.

For the first time since the Fed slashed rates to near zero when the pandemic hit the US in March 2020, Mr. Powell said nothing to dispel expectations that officials could be contemplating rate rises in the next few months. "We'll be in a position to raise interest rates as and when we think it's appropriate," he said. Brisk demand of goods, disrupted supply chains, temporary shortages and a rebound in travel pushed 12-month inflation to its highest readings in decades. Core consumer prices, which exclude volatile food and energy categories were up 4.1% in October from a year earlier, according to the Fed's preferred gauge. In economic projections released on Wednesday, most Fed officials project core inflation to reach 4.4% at the end of this year before declining to 2.7% next year and 2.1% by the end of 2024. That is up from projections in September that inflation would slow from 3.7% to 2.3% at the end of next year.

Fed officials' decision to take their foot off the gas more quickly reflects a shifting calculus about the potential for stronger demand to push up prices-such as wages and rents-even after supply chain bottlenecks and shortages of items such as cars abate.

"What they want to make sure is that they haven't let the situation get out of hand, where once the supply chain based inflation has come down, demand-based inflation tells them they should have gone sooner or faster," said Laurence Meyer, a former Fed governor who is now president of Monetary Policy Analytics.

Retail sales rose modestly last month, as shoppers grappled with rising prices and supply shortages. Sales at US retail stores, online sellers, and restaurants rose by a seasonally adjusted 0.3% in November from the previous month, a slowdown from October's 1.8% increase, the Commerce Department said Wednesday.

Wednesday's rate projections show all 18 Fed officials expect rates will need to rise next year. After projecting three quarter-percentage-point rate rises next year, most officials penciled in at least three more rate increases in 2023 and two more in 2024. Beginning in April, officials characterized elevated inflation as "transitory," largely because it reflected supply chain issues that officials expect will abate. But they stopped using that term in their statement Wednesday, partly to select greater uncertainty over how long it could take inflation to slow. Mr. Powell said he was surprised in recent months by a run of hotter economic data that hints at stronger demand in the US economy and not simply idiosyncratic supply constraints that pushed up prices. A sharp run-up in home values, stocks, and other assets boosted wealth for many Americans, fueling stronger demand and potentially allowing some to retire earlier than they anticipated, tightening the labor market.

Questions remain over the tightness in the job market, especially because it is hard to tell how many people might have left the workforce for good. Over the three months ended in November, the unemployment rate fell by one percentage point, to 4.2%.

While there are 3.9 million fewer people working than in February 2020, some of that gap might reflect retirees or others how are choosing not to work for several reasons, including Covid-19, increased wealth, or lack of child care. "We are not going back to the same economy we had in February of 2020, and I think early on, the sense was that that's where we were headed," Mr. Powell said.