The US Federal Reserve on Wednesday raised its benchmark interest rate by a further 25 basis points, setting the Fed's key short-term interest rate at 0.75-1.0 per cent.
This is the second time in three months the Fed is hiking its prime rate and follows its earlier assertion that the rates will be gradually hiked in line with a consistently solid US economy and will likely mean higher rates on some consumer and business loans.
''The committee expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further, and inflation will stabilise around 2 per cent over the medium term,'' the Fed stated in a release.
While near-term risks to the economic outlook appear roughly balanced, Fed said, it would continue to closely monitor inflation indicators and global economic and financial developments.
''In view of realised and expected labor market conditions and inflation, the committee decided to raise the target range for the federal funds rate to 0.75 to 1.0 per cent.''
Fed said its monetary policy stance remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 per cent inflation.
In determining the timing and size of future adjustments to the target range for the federal funds rate, the committee will assess realised and expected economic conditions relative to its objectives of maximum employment and 2 per cent inflation.
Fed chief Janet Yellen said the Federal Open markets Committee expects the ''US economy to expand with moderate pace over next few years and job conditions to strengthen further looking ahead.''
Fed said US economic activity has continued to expand at a moderate pace. Job gains remained solid and the unemployment rate was little changed in recent months. Household spending has continued to rise moderately while business fixed investment appears to have firmed somewhat.
Although inflation has increased in recent quarters, moving close to the committee's 2 per cent longer-run objective; excluding energy and food prices, inflation was little changed and continued to run somewhat below 2 per cent, Fed said.
The Fed said its assessment is based on a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.
''The committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. The committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data,'' the release stated
The Fed said it would continue its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalisation of the level of the federal funds rate is well under way.