The US central bank has raised interest rates as expected, but has again eased back on the pace of increases with a 0.25 per cent hike, down from a 0.5 per cent rise in December.

It’s the eighth lift in official borrowing costs since March last year, with US rates increasing by 4.5 per cent over the past year from near zero.

Federal Reserve chairman Jerome Powell told reporters at a press conference that the steep rate rises over the past year have been working, but there was more work to do.

“We continue to anticipate that ongoing increases will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 per cent over time,” Mr Powell said.

“The US economy slowed last year, with real GDP rising at a below-trend pace of 1 per cent.”

“Recent indicators point to modest growth of spending and production this quarter.”

“Consumer spending appears to be expanding at a subdued pace, in part reflecting tighter financial conditions over the past year.”

“Activity by the housing sector continues to weaken, largely reflecting higher mortgage rates.”

“Higher interest rates and slower output growth also appear to be weighing on business fixed investment.”

While inflation has been rapidly cooling in the US from a 40 year high above 9 per cent last year, Mr Powell says the Fed doesn’t see it as a time to pause rate hikes and thinks borrowing costs could rise to 5 per cent.

“We’ve raised rates 4 percentage points, and we’re talking about a couple of more rate hikes to get to that level we think is appropriately restrictive.”

“And why we think that’s probably necessary, we think because inflation is still running very hot.”

“I don’t see us cutting rates this year.” 

Here is the Fed’s statement: