The U.S. Federal Reserve lifted interest rates for a 16th straight time on Wednesday and said it would keep raising rates if necessary to check inflation, though it opened the door to a possible rate pause.

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The Fed emphasized its future course will be highly dependent on how the economic outlook unfolds.

The U.S. central bank's policy-setting Federal Open Market Committee voted unanimously to raise the benchmark federal funds rate target a quarter-percentage point to 5 percent, its highest level since April 2001.

But the FOMC — meeting for only the second time under new Fed Chairman Ben Bernanke — said in a statement issued after the meeting that further policy firming may be needed.

"The committee judges that some further policy firming may yet be needed to address inflation risks but emphasizes that the extent and timing of any such firming will depend importantly on the evolution of the economic outlook as implied by incoming information," the statement said.

Bond prices fell immediately after the FOMC decision was published and stocks also were down as traders apparently saw the statement as having a hawkish tone.

While raising the prospect that it could step to the sidelines, at least temporarily, the central bank made clear it still had concerns on inflation.

"Possible increases in resource utilization, in combination with the elevated prices of energy and other commodities, have the potential to add to inflation pressures," the Fed said.

The carefully parsed Fed statement had analysts guessing what the Fed will do at upcoming meetings.

"The Fed is going to keep us waiting and keep us guessing. They're still data-dependent. We're still going to have to watch capacity utilization and employment," said John Augustine, chief investment strategist at Fifth Third Asset Management in Cincinnati.

Minutes of the Fed's previous policy-setting session in late March showed most FOMC members believed the rate-raising campaign they kicked off in June 2004 was near an end.

Bernanke tried to send a more nuanced message in testimony to Congress late last month. He said that while the central bank might take no action at one or more meetings in the future as it awaited more information on the economic outlook, such a pause would not necessarily mean the Fed was done.

The U.S. economy bounced back in the first quarter from hurricane-induced weakness, growing at a robust 4.8 percent annual rate, the swiftest pace in 2-1/2 years.

However, most economists — and Fed officials — expect slower growth ahead.

The closely watched Blue Chip Economic Indicators newsletter said on Wednesday that its panel of forecasters looked for the economy to expand 3.4 percent this year, in line with estimates of the economy's noninflationary potential.

But there have been signs that persistently lofty energy prices may be feeding into inflation outside of the volatile food and energy areas.

The Fed's favorite core inflation gauge moved up a stiff 0.3 percent in March, pushing the 12-month increase up to 2 percent — the top of Bernanke's comfort zone. Inflation expectations have moved up as well.

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