WASHINGTON – The Federal Reserve raised a key interest rate by one-quarter point Thursday to 5.25 percent and did not rule out another hike at its next meeting in August, indicating that future economic performance will dictate whether additional action is necessary.
The move by the Federal Open Market Committee was widely anticipated by Wall Street, though there were whispers of a one-half point hike among some analysts and economists.
Wall Street, which had been worried that the central bank could overdo its credit tightening, soared on the Fed's comments, believing that the central bank is at least considering a pause in its two-year credit tightening campaign.
Following the announcement of the decision, stocks rallied sharply and added to already solid gains from earlier in the day.
The central bank's 17th consecutive rate hike comes as higher energy costs have heightened the inflation fears that prompted Fed officials to begin raising rates in 2004. While the economy has shown some signs of weakening, rising prices continue to be of worry to Fed officials.
In the statement explaining the decision, Fed Chairman Ben Bernanke and his colleagues said that "some further policy firming may yet be needed to address inflation risks."
The committee said that "some inflation risks remain" even though it was likely that a moderation in economic growth "should help to limit inflation pressures over time."
The extent of the economic slowdown is also less-than sure, and new data on Thursday further muddied the economic picture. Revised gross domestic product data from the Commerce Department indicated that the economy grew faster than initially approximated in the first-quarter, at 5.6 percent. Earlier estimates pegged growth at 5.3 percent.
Reuters contributed to this report.