Fed increased the interest rate by 0.25%, implying the need to tighten monetary policy even more as the central bank seeks to gain momentum in taming inflation.

In contrast to the prior range of 4.25% to 4.5%, the FOMC increased the interest rate to a range of 4.5% to 4.75%.

The quarter-point increase represented the Federal Reserve's second downshift post a slowing to 50 bps at Decembe's r meeting that followed 75 bps hikes for four times in a row.

In order to achieve a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time, the Committee believes that continuing rises in the target range will be necessary.

The Fed's favoured inflation indicator, the core personal consumption expenditures price index, dropped from 4.7% to 4.4% at a 12-month annualised rate in December.

The Fed is reluctant to abandon rate increases, citing a job market that is still blazing hot and threatens to drive up inflation.