The U.S. Federal Reserve (Fed) on Tuesday decided to increase the short-term interest rate by another 0.25 percentage point and raised the federal funds rate to 4.5 percent.

In the final decision-making meeting with Alan Greenspan as the Fed chairman, the U.S. central bank raised the federal funds rate - - the interest rate banks charge each other on overnight loan -- to the highest level in near five years. It was also the Fed's 14th quarter-point increase in a credit-tightening that began about 20 months ago.

In a statement released after the meeting, the U.S. Fed said " Although recent economic data have been uneven, the expansion in economic activity appears solid. Core inflation has stayed relatively low in recent months and longer-term inflation expectations remain contained."

"Nevertheless, possible increases in resource utilization as well as elevated energy prices have the potential to add to inflation pressures," it said.

"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," the statement said.

But the U.S. Fed also stressed that it "will respond to changes in economic prospects as needed to foster these objectives."

The Fed also unanimously approved a 25-basis-point increase in the discount rate to 5.5 percent.

Fed Chairman Alan Greenspan will leave his post on January 31 and Ben Bernanke, a former Fed board member who has been President Bush's chief economic adviser since last summer, is scheduled to take over on Wednesday as the Fed's 14th chairman since the central bank was created in 1913.

Source: Xinhua