The US Federal Reserve has raised its interest rate by a quarter of a per cent, in only its second rise in a decade.

As well as raising its target range from 0.25% to 0.5% to a range of 0.5% to 0.75%, the Federal Open Market Committee also approved a quarter-point increase in the discount rate from 1% to 1.25%.

The 10 Federal Reserve officials voted unanimously for the rate hike, the first time they have all agreed since June, the Associated Press reported.

It said the rise is due to moderate growth of the US economy and a better jobs market. While inflation is still below its 2% target, there will be a gradual rise in prices in the medium term.

In a statement, the Fed said it expects the economy will need only "gradual" increases in the future.

Fed officials have also forecast three rate increases in the next three years, predicting that the federal rate, which is what banks charge each other for short-term loans, will be between 2.75% and 3% by the end of 2019.

Officials said that the jobs market was getting stronger, adding in a statement: "The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labour market conditions and a return to 2% inflation."

"The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate. The federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run."