The US Federal Reserve has sought to head off rising inflation with a third interest rate rise since the 2008 financial crash and the second in three months to a base range of 0.75 to 1%.

The central bank set aside concerns about the impact of higher interest rates on consumer spending to confirm analyst projections that the Fed is prepared to increase rates several times this year to keep a lid on inflation as it rises above the Fed’s 2% target level.

Fed boss Janet Yellen said a wide range of indicators showed the US economy was in rude health, allowing the federal markets to push rates back towards historically normal levels. Policymakers voted nine to one to raise rates.

Earlier in the day the Commerce Department said retail sales inched up by 0.1% in February, while sales in January were better than it previously estimated.

The Labor Department said consumer prices were 2.7% higher in February than a year earlier. After excluding the costs of food and energy, inflation was 2.2%.

A housing market index by the National Association of Home Builders also surged to its highest level since 2005.

US stock markets moved up on the news, rising 90 points in the minutes after the decision, and US crude rose 2%. But the increases were modest following signals in December from Yellen that interest rates were on an upward path. Investors were caught out by Yellen’s bullish comments in the wake of the announcement and by projections showing that 11 of her 17 policy-making colleagues saw borrowing costs rising another three times in 2017.

Dennis de Jong, managing director at currency trader UFX.com said: “Given the bloating effect Donald Trump’s presidency has had on US inflation, it would have been more of a surprise had Fed Chair Janet Yellen not announced a rate hike at today’s Federal Reserve meeting.

“Trump’s grand plans for American infrastructure spending have signalled an about-turn for US economic policy – after just one rate increase in ten years, we’ve now seen two in the space of three months, and plenty more are expected for 2017.

“This all spells bad news for US borrowers, who will likely have to foot a larger bill over the coming months. With at least three more hikes on the cards by the end of the year, today’s news could hit many where it hurts the most – the pocket.”

US CPI

But some economists argue that weak wages and productivity growth in the US will limit Fed’s rate increases to a handful before reaching a peak at around 2%.

Gus Faucher, deputy chief economist at stockbroker PNC, said: “I think the concern, in terms of why the Fed is raising rates now, is that inflation is picking up. The unemployment rate is 4.7% and that’s putting upward pressure on prices.”

But he told the Guardian economic forces were acting against a return to interest rate levels of 4-5% seen before the 2008 crash.

“We have slower labor force growth because of the ageing of the baby boomers, [and thus] slower productivity growth in terms of output per worker,” Faucher said. “That has reduced the potential for long-run growth, it’s reduced inflationary pressures, and I think rates in the future will be lower than they have been in the past.”

US retail sales

Faucher warned that further interest rate rises could dent consumer spending, which has come to rely on cheap loans.

“I do think eventually that higher interest rates are going to have an impact on rates for car loans, so that may be a problem for automakers. It may be a problem for big-ticket durable items, home appliances, stuff like that.” There is a ceiling on those effects, though, and Faucher doesn’t think they will affect home loans.

“There isn’t much bleed over into mortgage rates; it’s mostly the short-term borrowers,” he said.

Fed policymakers are also known to be concerned that tax cuts and extra government spending demanded by President Donald Trump could overheat the economy and lead to a deep recession. Should that happen, the Fed will want to have substantial interest rates in place.