"In view of realized and expected labor market conditions and inflation, the central bank decided to raise the target range for the federal funds rate by 25 basis points to 0.75-1.0 per cent," the Fed's policy-making committee said in a statement released after its two-day meeting.
This marks the Fed's third rate hike since the financial crisis and the second time in three months, suggesting the Fed has stepped up its pace of tightening with more confidence in the strengthening of the US economy, Xinhua news agency reported.
In a speech in Chicago earlier this month, Fed Chair Janet Yellen had signalled that the pace of future rate hikes would not be as slow as once a year in 2015 and 2016, and an interest rate hike this month would likely be appropriate.
"We've seen the labor market that has healed quickly and kept generating impressive job growth," chief economist for global macro at the Institute of International Finance (IIF) Ulrik Bie said before the Fed's meeting.
Bie added that "the potential more inflation" generated from job growth going forward warranted a decisive action from the Fed this week.
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)