The Federal Reserve nudged up short-term interest rates for the fourth time this year, defying pressure from President Trump.

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The Federal Reserve nudged up short-term interest rates for the fourth time this year, defying pressure from President Trump, but suggested it could slow the pace of increases next year in the face of new headwinds.

Fed officials voted unanimously Wednesday on the increase, which will bring the benchmark federal-funds rate to a range between 2.25% and 2.5%, the ninth such rise since December 2015. They also indicated they think they won’t need to raise rates as much next year as they had anticipated three months ago.

Stock markets, which had recorded their largest two- and four-week declines heading into any Fed rate increase, fell after Wednesday’s decision. The Dow industrials slid 352 points, or 1.5%, to close at 23324, after falling as many as 513 points while Fed Chairman Jerome Powell spoke. The index had been up about 300 points just ahead of the rate decision.

The yield on the benchmark 10-year U.S. Treasury slumped to 2.782%, down from about 2.830% before the Fed’s announcement and its lowest level since May. Bond yields fall as prices rise and have slipped lately since last month when they settled at their highest level since 2011.

The declines unfolded during a news conference in which Mr. Powell said officials expected the economy would be strong enough next year to justify two more rate increases.

“We have seen developments that may signal some softening, relative to what we were expecting a few months ago,” he said, pointing to the slowing global economy and increased market volatility that is less supportive of growth. “In our view, these developments have not fundamentally altered the outlook.”

The backdrop for the Fed’s two-day policy meeting was among the most unusual in recent history. The Republican president continued his monthslong public criticism of the central bank in the days leading up to the meeting, urging the Fed not to raise rates in statements on Twitter. “Don’t let the market become any more illiquid than it already is,” Mr. Trump said Tuesday. “Feel the market, don’t just go by meaningless numbers.”

Mr. Powell repeatedly said political pressure would never influence the Fed’s decisions. “Political considerations have played no role whatsoever in our discussions or decisions,” he said. “Nothing will deter us from doing what we think is the right thing to do.”

Even though the Fed signaled a less aggressive rate path, markets had been looking for signals it might be done raising rates, which Mr. Powell didn’t offer. He also said the Fed was committed to steadily letting its crisis-era holdings of Treasury and mortgage bonds run off as planned, following a strategy initiated last year.

“This was a more dovish Fed, but not dovish enough for the markets,” said Kathy Bostjancic, head U.S. financial market economist at Oxford Economics. Bond markets have priced in less than one rate increase next year.

Treasury yields tumbled and buying soared “after it became apparent Mr. Powell was repeating things he could have said three to four weeks ago,” said Jim Vogel, a rate strategist at FTN Financial. Bond traders felt Mr. Powell’s comments were insufficient to address the rapid decline in traders’ economic confidence in recent weeks, he said.

The updated projections released Wednesday showed 11 of 17 officials expected they would need to raise rates no more than two times next year, compared with seven of 16 officials who held that view in September.

Six officials expected to raise rates three times or more in 2019, down from nine of them in September, and six believed the Fed might need to raise rates no more than once, up from three policy makers in September.

Officials penciled in one rate rise in 2020 and none in 2021, and their median projection of the neutral interest rate, which neither spurs nor slows growth, edged down to 2.75% from 3%. The latest increase leaves the Fed about one interest-rate move away from that neutral setting.

The changes signal the impending close of a three-year chapter of policy “normalization” in which officials lifted interest rates slowly after holding them near zero for seven years to nurse an economy battered by the 2008 financial crisis.

Now, they think they need to raise rates a bit more to prevent solid U.S. economic growth from fueling excessive inflation or asset bubbles, but they aren’t sure how much further to go or how quickly. Their decisions on how to manage this new phase of fine-tuning their policy will depend largely on near-term changes in the economy and financial markets.

Officials made just modest revisions to their economic projections, showing less inflation and slightly slower growth than they anticipated earlier this year. The shifts reflected the result of a recent market pullback that has made financial conditions for businesses and consumers tighter, which means the Fed doesn’t have to raise rates as fast to keep the economy on an even keel.