Fed raises interest rates again in further sign of confidence in US economy

• Central bank raises rate from 1% to 1.25% and plans to reduce bond holdings
• Committee says job market has strengthened and suggests more rises in future

The US Federal Reserve announced it was raising short-term interest rates by a quarter percentage point on Wednesday as the central bank continued to unwind the huge economic stimulus plan brought in after the great recession.

After a two-day meeting, the Fed raised the target range of the federal funds rate from 1% to 1.25%, the third consecutive quarterly increase. The move follows a record run of jobs growth in the US that has driven the unemployment rate down to its lowest level in 16 years.

Related: Jobs report: US unemployment hits 16-year low despite slower hiring