UPDATE - US Federal Reserve raises interest rate

UPDATES WITH MORE COMMENTS FROM FED CHAIR YELLEN

By Ovunc Kutlu

NEW YORK (AA) - The Federal Reserve increased its benchmark interest rate by 0.25 percent, the Federal Open Market Committee (FOMC) announced Wednesday.

FOMC members voted unanimously to raise the central bank's interest rate to 1.25 percent, the committee said in a statement.

"Job gains have moderated but have been solid, on average, since the beginning of the year, and the unemployment rate has declined," according to the statement.

The unemployment rate fell to 4.3 percent in May, from 4.4 percent the previous month, but the economy added just 138,000 jobs, less than the 185,000 that was projected.

The FOMC signaled it remains hopeful "labor market conditions will strengthen", and said it expects U.S. economic activity to get stronger as well.

The committee anticipates inflation to stabilize around the Fed's target of 2 percent in the medium-term, although it currently remains below that level.

The Consumer Price Index, which measures the change of inflation, decreased 0.1 percent in May, the Department of Labor announced earlier Wednesday.

The Fed Chair Yellen stressed that inflation does not respond too much, or too quickly, to changes in unemployment, but said the FOMC expects economic growth to increase.

"After the slowdown in the first quarter, economic growth seems to have rebounded. We expect economy to expand in the next few years," she said in a press conference after the Fed's rate hike.

American economy grew only 0.7 percent in the first quarter of the year -- the lowest quarterly growth rate in the last three years -- but this was later revised to 1.2 percent, according to the U.S. Department of Commerce on May 26.

"A solid rate of growth remains well above expectations. The economy evolves in the manner that we expect," Yellen said.

It is the second time the central bank has raised its benchmark interest rate this year, and the fourth since December 2015.