The US Federal Reserve (Fed) increased the short-term interest rate by a one-quarter percentage point on Wednesday, the first rate increase in four years.

Analysts said that the increase, the first since May 2000, was aimed at keeping the US economy on a healthy track and inflation under control.

The Federal Open Market Committee (FOMC) -- US Fed's policy-making body -- announced that it increased the federal funds rate, which commercial banks charge each other overnight, from a 46-yearlow of 1 percent to 1.25 percent.

The FOMC said in the statement after a two-day meeting that it "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."

"The evidence accumulated over the intermeeting period indicates that output is continuing to expand at a solid pace and labor market conditions have improved," it said.

"The Committee perceives the upside and downside risks to the attainment of both sustainable growth and price stability for the next few quarters are roughly equal," the FOMC said.

The statement said that, with underlying inflation still expected to be relatively low, the Fed believes that policy accommodation can be removed at a pace that is likely to be measured.

However, it also stressed that the US Fed will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability.

Since January 2001, US Fed has cut interest rates 13 times in a bid to push the US economy out of recession and offset the popping of the technology bubble, the September 11, 2001 terrorist attacks, corporate scandals and the wars in Afghanistan and Iraq.

The US economy increased at an annual rate of 3.9 percent in the first three months of this year following increasing rates of 8.2 percent and 4.1 percent in the third quarter and last quarter of 2003. However, for the first five months of this year, US consumer prices rose at an annual rate of 5.1 percent, comparing with the 1.9 percent increase for all of last year.

Source: Xinhua