Borrowing cost raised in US again

The Federal Reserve last night raised US interest rates for the ninth successive time as it sought to head off inflationary pressures without damaging growth prospects in the world's largest economy, writes Larry Elliott.

In a move expected by Wall Street, America's central bank pushed up its benchmark Fed Funds rate by 0.25 points to 3.25%, continuing the steady rise from the 40-year-low of 1% reached after the September 11 attacks of 2001.

In a statement explaining the unanimous decision, the Fed said that even after last night's tightening of policy, interest rates were helping to boost growth and reaffirmed its intention to introduce further increases "at a measured pace".

Analysts said it was clear that further increases in interest rates were in prospect, with Wall Street pencilling in rises at the next two meetings of the Fed's open market committee in August and September. Financial markets believe the Fed Funds rate - the interest rate charged on overnight loans between banks and intended to influence credit costs throughout the economy - will be at 4% by the end of the year.

The committee said the US had "robust underlying growth in productivity" and said the US economy had so far weathered the impact of dearer energy. The outlook for jobs was gradually improving. "Pressures on inflation have stayed elevated, but longer-term inflation expectations remain well contained."