Interest rates up again in the US

The US Federal Reserve responded to signs of growing inflationary pressure in the world's biggest economy last night by raising interest rates for the eighth time in a row.

Warning that further increases in the cost of borrowing were in the pipeline, the Fed's open market committee pushed its key fed funds rate up by a quarter point to 3%.

Interest rates have now trebled since hitting the 40-year low of 1% after the dotcom collapse and the terrorist attacks on September 11 2001.

The Fed said there were signs that the economy was beginning to slow under the weight of higher energy costs but that interest rates were still low and "providing ongoing support to economic activity".

It added: "Pressures on inflation have picked up in recent months and pricing power is more evident." In a unanimous decision, the Fed said that the risks to both growth and inflation were evenly balanced and it could continue to raise interest rates at a measured pace.

There have been indications recently that the consumer boom has begun to cool with durable goods orders falling last week to two and half year lows.

"Recent data suggest that the solid pace of spending growth has slowed somewhat," said the committee. It added that the labour market was improving, albeit gradually.

Last night's move had been widely anticipated on Wall Street, where the recent run of disappointing data had scotched fears of the Fed moving more aggressively.

Shares barely moved after the decision was announced, although some analysts expressed concern at the central bank's more hawkish tone on inflation.

Steven Englander, chief currency strategist at Barclays Capital in New York, said: "The extent to which they are softening the language on growth is not nearly as pronounced as the extent to which they are strengthening the language on inflation."