The US Federal Reserve yesterday signalled a new urgency in its attempts to damp the blazing US economy, raising short-term interest rates by half a percentage point to their highest level since the US emerged from recession in 1991.

The Fed's policy-making open market committee (FOMC) lifted its key interest rate, the target for the fed funds rate at which it lends to the banking system, to 6.5 per cent. The central bank also raised its largely symbolic discount rate by half a point to 6 per cent.

The move marked the abandonment, at least for now, of the gradualist approach to monetary policy that has been the central bank's hallmark for the past five years. It was the first time since early 1995 that the Fed moved interest rates by other than a quarter of a percentage point.

Explaining its decision, the FOMC repeated its now familiar concern that the rapid pace of demand growth was outstripping supply, and hinted that there might be more rate rises to come. `Against the background of its long-term goals of price stability and sustainable economic growth and of the information already available, the Committee believes the risks are weighted mainly toward conditions that may generate heightened inflation pressures in the foreseeable future.`

Attention now shifts to the next Fed meeting at the end of June and, in particular, to whether there will be any evidence to prevent another rate rise to rein in demand.

The Fed has lifted short-term rates by one and three quarter percentage points in the past year in an attempt to slow the frantic pace of growth.