Fed raises US interest rates to highest in 16 years

The US central bank has raised interest rates to the highest level in 16 years as it battles to stabilise prices.

The Federal Reserve increased its key interest rate by 0.25 percentage points - its 10th hike in 14 months.

The moves have sharply raised borrowing costs across the world's largest economy, spurring a slowdown in sectors such as housing and playing a role in the recent failures of three US banks.

The Fed signalled that Wednesday's rise may be its last one for now.

The bank started raising interest rates aggressively last year when prices in the US were soaring at the fastest pace in decades.

The moves have pushed the target range for its benchmark rate to 5% to 5.25% - up from near zero in March 2022.

Central banks around the world, including in the UK and in Europe, have taken similar action.

Higher interest rates make it more expensive to buy a home, borrow to expand a business or take on other debt. By increasing those costs, officials expect demand to fall and prices to cool off.

Since the Fed started its campaign, price increases in the US have shown signs of moderating.

In March, inflation, the rate at which prices rise, stood at 5% - the lowest level in nearly two years - though still uncomfortably high for the Fed, which is targeting a 2% rate.

Gregory Daco, chief economist at EY-Parthenon, said he thought the Fed would be "prudent" to pause now, noting that the risks to the economy as activity slows are growing.

"The fear of a recession is very much present in the economy today," he said. "I don't think the inflation battle is over, but we are in a situation where we're seeing gradual disinflation and we're also in an environment where interest rates are high and elevated and therefore should be constraining business activity, which should lead to further disinflation in coming months."