Rate rise: The Fed says oil prices and hurricanes will impact on the economy.
Fed raises US interest rates The United States Federal Reserve has raised interest rates for an 11th straight time, and signalled more increases to come.
Fed board governor Mark Olson dissented from the rate rise vote, saying he preferred to hold borrowing costs steady.
It is the first such dissent since June 2003.
In a nine-to-one vote, the policy-setting Federal Open Market Committee (FOMC) opted to increase the benchmark federal funds rate charged on overnight loans between banks by a quarter of a percentage point to 3.75 per cent.
In a statement outlining its decision, the Fed says US spending, production and employment will suffer a near-term knock from Katrina and that energy prices may be elevated and volatile.
"While these unfortunate developments have increased uncertainty about near-term economic performance, it is the committee's view that they do not pose a more persistent threat," the FOMC said.
US Treasury bonds fell in the wake of the decision while the US dollar held steady and stock markets were mixed.
The Fed funds rate now stands at their highest level since June 2001, though market-set long-term rates remain low by historical standards.
"Higher energy and other costs have the potential to add to inflation pressures," the Fed said.
"However, core inflation has been relatively low in recent months and longer-term inflation expectations remain contained."
