The Federal Reserve redoubled its efforts to slow the pace of US economic growth yesterday with another quarter-point increase in short-term interest rates.

The central bank's open market committee (FOMC) raised its key lending rate to 6 per cent, and hinted there was more to come. It was the fifth time in nine months the Fed funds target rate had been raised. The Fed's board also raised its largely symbolic discount rate by the same amount to 5.5 per cent.

"Against the background of its long-run goals of price stability and sustainable economic growth . . . the committee believes the risks are weighted mainly toward conditions that may generate heightened inflation pressures in the foreseeable future," the FOMC said. It remained concerned that increases in demand would "continue to exceed the growth in potential supply, which could foster inflationary imbalances that would undermine the economy's record economic expansion".

The latest increase sends shortterm rates to their highest level since the spring of 1991, when the Fed began its strategy of cutting them aggressively to stimulate recovery from the last recession.

Financial markets had been expecting the increase and were largely unmoved. Since last June, the Fed has raised short-term rates by 1.25 percentage points, but has so far failed to damp the economy's fires.

Gross domestic product grew at an annual rate of 6.9 per cent in the last three months of 1999, and early data for the first quarter of this year suggest that, while growth is slowing somewhat, the pace remains well above 4 per cent. This is still in excess of what Mr Alan Greenspan, the Fed chairman, and his colleagues regard as a safe rate.

Most economists expect another half-point increase in rates, probably in two instalments beginning with the next FOMC meeting on May 16th. What happens next will depend on whether the economy shows clear signs of a slowdown.

Interest rate changes tend to work with relatively long time lags of up to a year, and there are now indications that the higher rates may be starting to bite into some sectors of the economy such as the housing market. Higher oil prices are also expected to damp demand a little.

Also, in spite of the surge in prices of technology stocks over the last year, broader financial market indices are little changed from where they were a year ago. Fed officials have repeatedly said they are not targeting stock prices, but they believe increased equity market wealth has fed directly into faster rates of consumer spending growth.

If there are no clear signs of a broader-based slowdown soon, the Fed may feel it needs to take more aggressive action, perhaps raising rates by more than the incremental, quarter-point increases it has made so far.