The Federal Reserve raised US interest rates yesterday for the 12th straight time, taking them to to 4 per cent - the highest level in more than four years - and indicating more hikes will be needed to keep inflation at bay.

The central bank's policy-setting Federal open market committee, expressing concern over potential inflation pressures, voted unanimously to raise the benchmark federal funds rate charged on overnight loans between banks a quarter percentage point to 4 per cent.

The move extended a campaign of rate rises the Fed initiated in mid-2004 and took overnight borrowing costs to a level last seen in June 2001.

In a statement outlining its widely expected decision, the Fed described monetary policy as accommodative - its way of saying more hikes are needed - and said that recent hurricanes were unlikely to derail the economic expansion.

Once again, the Fed said it was worried high energy prices could add to inflation pressures, although it said inflation outside of food and energy prices, and expectations of future inflation over the long haul were still contained.

Recent comments by Fed policymakers suggest that they still have some way to go before they will feel comfortable pausing in the rate hike campaign, which they kicked off in June of last year.

The US central bank is widely expected to keep raising rates at least through the tenure of Alan Greenspan, which ends in January.