The US Federal Reserve (Fed) increased the short-term interest rate by 0.25 percentage point on Wednesday, the sixth increase since last June as US policy-makers continued their efforts to make sure a strengthening economy does not trigger unwanted inflation. Fed Chairman Alan Greenspan is shown testifying on Capitol Hill on February.

The US Federal Reserve (Fed) increased the short-term interest rate by 0.25 percentage point on Wednesday (Feb. 2), the sixth increase since last June as US policy-makers continued their efforts to make sure a strengthening economy does not trigger unwanted inflation.

The US Fed announced its decision at the end of its two-day policy-making meeting and the increase was widely expected by almost all the economic analysts.

The US Fed increased the federal funds rate, the interest that banks charge each other, five times last year and the latest move raised the rate to 2.5 percent. Before the Fed began tightening credit last June, the funds rate had been at a 46-year low of 1 percent for about a year.

The Federal Open Market Committee, US Fed's policy-making body, said in a statement that "The Committee believes that, even after this action, the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity."

"Output appears to be growing at a moderate pace despite the rise in energy prices, and labor market conditions continue to improve gradually. Inflation and longer-term inflation expectations remain well contained," the statement said.

In explaining its action, the Fed repeated a previous promise that it believed it would be able to raise rates at a "pace that is likely to be measured."

Analysts said that Fed's move is aiming at curbing the pressure of US inflation which increased strongly last year. Consumer prices rose by 3.3 percent last year, compared to a 1.9 percent rise in 2003. It was the biggest annual increase since 2000.

Editor: Olivia