America's Federal Reserve slowed its pace of interest rate hikes on Wednesday, tempering an aggressive campaign to rein in costs as inflation cools while signalling the battle is not yet over.

The US central bank announced a quarter-point hike to the benchmark lending rate at the end of its two-day policy meeting, taking the rate to a target range of 4.50-4.75 percent.

"Inflation has eased somewhat but remains elevated," said the Fed's policy-setting Federal Open Market Committee (FOMC) in a statement.

"The committee anticipates that ongoing increases in the target range will be appropriate" to bring inflation back to policymakers' two percent target over time, the statement said.

The Fed has cranked up interest rates eight times since March 2022, including four consecutive 0.75 percentage point increases, lifting borrowing costs in hopes of dampening demand.

The aim is to rein in inflation, which surged to its fastest pace in decades last year but has since come off a peak.

On Wednesday, the Fed acknowledged that recent indicators "point to modest growth in spending and production" as economic activity eases.

The 0.25 percentage point rise marks a step down from December's half-point hike and the series of bigger spikes last year.

But the FOMC statement suggests that rate increases will continue.

It stressed that officials are "highly attentive to inflation risks" amid fallout from Russia's war in Ukraine, which is contributing to greater global uncertainty.

The Fed will want "concrete evidence that they've killed inflation, and they haven't yet," said Ryan Sweet, chief US economist at Oxford Economics.

While an easing of supply chain stress and shift in consumer spending from goods to services allows some costs to moderate, Sweet expects that services costs will keep the Fed on a "rate-hiking course."

Analysts anticipate the Fed is looking for labour market conditions to ease, reducing wage pressures and services inflation.

For now, data released on Tuesday showed that a measure of pay and benefits rose less than expected in the fourth quarter last year.

On Wednesday, payroll firm ADP's figures indicated private hiring slowed more than expected in January, adding to signs that the labour market is cooling.

Ian Shepherdson, chief economist of Pantheon Macroeconomics, argues it is time to pause the Fed's rate hikes, saying in a tweet on Tuesday that "their work is done."

"They have suppressed inflation expectations; the Covid distortions to rents and margins are working through and will drive inflation down," he added.

"Every further Fed rate hike from here just increases the chance of an entirely unnecessary recession," said Shepherdson.

Some Democrats in Congress have also expressed concern over rate increases, with Senator John Hickenlooper calling this week for the central bank to "proceed with caution."

But Fed officials have expressed determination to stay the course, with Fed Chair Jerome Powell telling reporters in December that "the historical record cautions strongly against prematurely loosening policy."

Sweet of Oxford Economics said: "If they signal that they're done and then have to reverse course, that's going to be very disruptive to financial markets."

In a speech this month, Fed Governor Christopher Waller cautioned against being misled by a temporary trend of positive data.

He added that he will be looking for recent improvements in inflation figures to continue, but there is a "considerable way to go toward our two percent inflation goal." (AFP)