US Fed raises interest rate for third time this year

The US Federal Reserve (Fed) increased the short-term interest rate on Tuesday, the third increase in a row since the end of last June.

The US federal fund rate, which commercial banks charge each other overnight, has been raised to 1.75 percent from 1.5 percent. However, the US shorter-term interest rate remained at the lowest level in more than 40 years.

The Federal Open Market Committee (FOMC), US Fed's policy-making body, said in a statement that it sees the risks to the US economy as balanced, allowing a more neutral monetary policy.

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

The statement repeated the Fed's stand that future rate increases are expected to come at "a pace that is likely to be measured."

It said 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."

But the FOMC said the US economy no longer needs the ultra-low rates needed to avert economic contraction.

"After moderating earlier this year partly in response to the substantial rise in energy prices, output growth appears to have regained some traction, and labor market conditions have improved modestly," the statement said.

The statement added that inflation remains tame despite the recent surge in oil prices. "Despite the rise in energy prices, inflation and inflation expectations have eased in recent months," the statement said.

In a bid to curb the rising pressure of inflation resulting partly from the soaring oil prices, the US Fed began raising short-term interest rate at the end of June after keeping the rate at 1 percent for about a year, the lowest level in 46 years.