US ups rate but hints at peak

The United States' central bank raised interest rates last night for the 16th successive time but hinted that the peak in borrowing costs in the world's biggest economy was close at hand.

Continuing a policy stretching back almost two years, the Federal Reserve raised its key fed funds rate by 0.25 percentage points to 5% in an attempt to prevent the recovery from the short-lived recession earlier this decade pushing up inflation.

It said some further tightening of policy might be needed to keep inflation in check but said the timing and the extent of any further increases in rates would depend on what happened to the economy.

Wall Street had been braced for the move and saw the Fed's announcement as an indication that the central bank might push up rates by a further quarter-point at its next meeting in late June before pausing to take stock.

Although business sentiment in the US has been strong and growth has picked up after the hurricane-affected slowdown last autumn, the housing boom that has underpinned consumer spending has recently shown signs of coming to an end.

The Fed said: "Economic growth has been quite strong so far this year. The committee sees growth as likely to moderate to a more sustainable pace, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices.

"The committee judges that some further policy firming may yet be needed to address inflation risks but emphasises that the extent and timing of any such firming will depend importantly on the evolution of the economic outlook."