Ben Bernanke, Alan Greenspan's successor as chairman of America's central bank, signalled clearly last night that US interest rates still have some way to rise.
In a tough statement after the Fed's Open Market Committee, chaired for the first time by Mr Bernanke, raised raised its key interest rate by a quarter point to 4.75 per cent, the 15th increase in a row and the higher rate since April, 2001, the Fed underscored his determination to keep inflation under control.
It is the first time for several years that US rates have been higher than the Bank of England's, held at 4.5 per cent since last August.
Mr Bernanke's reputation had previously rested on efforts to counter deflation when it was seen as the greater threat to US prosperity.
The Fed warned outright that further moves may be needed to keep inflation at bay. US financial markets are already looking for a rate of at least five per cent in the coming months.
Earlier, a survey showed US consumer optimism nearing its highest point in nearly four years. It indicated robust economic growth for the first six months of this year, to be followed, though by something of a slowdown later on if the US housing market finally starts to cool off.
"Economic growth has rebounded strongly in the current quarter, but appears likely to moderate to a more sustainable pace," the Fed's committee stated after its two-day meeting.
Higher energy and commodity prices so far appeared to be having only a modest impact on core prices and inflationary expectations were still contained, it added.
"Still, possible increases in resource utilisation, in combination with the elevated prices of energy and commodities, have the potential to add to inflation pressure," the committee said.
With US unemployment at a historically low 4.8 per cent and the amount of unused industrial capacity dwindling, the central bank remains wary of inflation.
"The committee judges that some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance," it concluded, using the same language as after the last meeting.
