The Federal Reserve raised short-term interest rates lifting its federal-funds rate target to 3.5% from 3.25% and signaling that more increases are to come.

The decision, which was expected, marks the 10th consecutive increase by the Fed.

“Aggregate spending, despite high energy prices, appears to have strengthened since late winter, and labor market conditions continue to improve gradually,” the Fed said in a statement accompanying its decision. Inflation excluding food and energy prices “has been relatively low in recent months and longer-term inflation expectations remain well contained, but pressures on inflation have stayed elevated.”

The Fed repeated its view that rates would likely continue to rise at a “measured” pace, which has come to mean no more than a quarter point per meeting.

The Federal Reserve began raising rates in June of last year, when its target for the federal-funds rate stood at 1%, the lowest in 46 years. It has raised the target by a quarter of a percentage point at each subsequent meeting.


FOMC statement http://www.federalreserve.gov/boarddocs/press/monetary/2005/20050809/default.htm