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 percent.

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 hurricanes that struck earlier this year were unlikely to derail economic expansion.

"Elevated energy prices and hurricane-related disruptions in economic activity have temporarily depressed output and employment," the Fed said in its post-meeting statement.