The US Federal Reserve yesterday raised interest rates by a quarter point to 2.75 per cent and signalled increased concern about inflation pressures.
The policymaking Federal Open Market Committee, in its statement, repeated that it expected to continue raising rates at a "measured" pace.
Yesterday's rise was the seventh consecutive quarter-point move since the Fed started tightening policy last June.
Yesterday, however, the committee said: "Though longer-term inflation expectations remain well-contained, pressures on inflation have picked up in recent months and pricing power is more evident."
While it saw the risks to growth and inflation as roughly equal, it made clear that this judgment was based on "appropriate monetary policy action".
The Fed also said that output was expanding at a "solid" pace - this is a more upbeat assessment than its previous view that growth was expanding at a "moderate" pace, in spite of the rise in energy prices.
Peter Hooper, chief US economist at Deutsche Bank, said: "They got about as hawkish as they could without changing the key policy language."
He added: "They are inclined to continue with 25 basis point increases, but wanted to reassure the market they would do more if necessary." Bonds and stocks sold off after the announcement, with the yield on the 10-year treasury note reaching 4.6 per cent, an eight-month high.
Even after yesterday's rate increase, policy remained "accommodative", the Fed said. The so-called neutral or equilibrium federal funds rate, at which monetary policy neither stimulates nor restricts the economy and is consistent with price stability, is typically described by policymakers in a range centred about a 4¼ per cent average over time.
Data released since the February meeting has confirmed the central bank's bank forecast of robust, above-trend growth this year. However, there is increased sensitivity to mounting inflation pressures, shown in the producer price index and also in some measures of consumer inflation, at a time when strong growth leaves less slack in the economy.
The core producer price index, excluding food and energy, rose only 0.1 per cent after January's 0.8 per cent rise, it was announced yesterday. - (Financial Times Service)