The Federal Reserve signaled it is moving toward interest-rate increases later this year with the economy improving after a winter slump, though central bank officials reiterated they will act cautiously. “Economic conditions are currently anticipated to evolve in a manner that will warrant only gradual increases in the target federal-funds rate,” Fed Chairwoman Janet Yellen said in a press conference following the June FOMC meeting.

The Fed indicated it might raise rates once in 2015 by a quarter percentage point. By December 2017, the central bank expects its benchmark short-term interest rate to remain below 3 percent, lower than previously forecast.

In a policy statement accompanying its newest projections, the Fed acknowledged that activity had been “expanding moderately” after a winter stall and job gains had “picked up.” While inflation continued to run below its 2 percent objective, the committee noted energy prices had stabilized after pushing inflation lower.

The interest rate projections showed that two officials don’t want to move rates at all this year. Five members, on the other hand, want to push rates up by a quarter percentage point and five others want to move it up by half percentage point. In March, only one official saw a quarter-percentage-point increase and seven saw a half-percentage-point rise. The shifts show the center of gravity on the number of rate increases this year is moving down.

Projections for future years are down as well. The median estimate for rates in 2016 has shifted down to 1.625 percent from 1.875 percent in March. The median estimate for 2017 has dropped to 2.875 percent from 3.125 percent in March.

“I want to emphasize sometimes too much attention is placed on the timing of the first increase in the federal-funds rate,” Yellen said in the post-meeting press conference. “What should matter to market participants is the entire expected trajectory of policy.”

In the credit markets, Treasury yields have seen a steady climb since February, when the 10-year note bottomed out at 1.68 percent. More recently, the yield reached 2.5 percent, the highest level since September 2014.

According to observers, higher yields in the Treasury market are a result of two factors. The first is economic data lately confirming the Fed’s view that the soft growth in the first quarter was due to temporary factors. The second factor is the sell-off in the Eurozone bond market, which has dragged U.S. yields higher.

Eurozone bond yields are rising as deflationary fears ebb. For example, the Eurostat index of consumer prices was reported at 0.3 percent in May, up sharply from minus 0.6 percent in January. In response, the yield on the benchmark German 10-year bund has gained nearly 100 basis points over the past two months, reversing a sustained downward trend.

In this environment, banks are boosting municipal-debt holdings to a record even as regulators say the securities may not be sufficiently liquid to make a difference during a credit crisis. Regulators last fall issued rules that banks must have enough “easy to sell” assets in case of a crisis; municipal bonds were not included in the calculation.

U.S. financial institutions owned $452 billion of municipals as of Dec. 31, double their ownership at the end of the recession in June 2009, according to the Federal Reserve. These positions now comprise nearly 25 percent of securities holdings. Banks own about 13 percent of municipals, making them the third largest investor group after consumers and mutual funds. Lenders added $33 billion in 2014, which drove a 9.8 percent increase in holdings. Money center banks, in fact, have tripled municipal holdings since 2009.

Citing the increase in bank ownership, the OCC said it supports banks making investments in the municipal bond market even as it showed no indication it would be flexible with the new liquidity requirements. “The agency considers bank investments in municipal securities a prudent activity when part of a safe and sound investment strategy,” the OCC said in a statement.

Banks are buying municipals for their relative value, most agree. Yields on longer-term tax-exempt debt have averaged about 20 basis points above Treasuries for the past few years. As an example, the pre-tax yield on a double-A rated “bank-qualified” issue is currently about 2.4 percent, compared to 2.30 percent for a 10-year treasury, or ratio of 1.04. On a tax-equivalent basis, the 10-year municipal yield is roughly 3.65 percent.

In a rising rate environment, investors typically accept lower yields on municipals than treasuries because of the tax benefit. Should the municipal/treasury yield ratio return to its historical norm of about 0.80 as rates rise, then municipals should experience lower price volatility, reducing interest rate risk. Over the long term, municipals have outperformed all major fixed income asset categories and maintained less volatility than many of their taxable counterparts. For many institutions, it’s a compelling argument to include municipals.