The rate hike should not come as a surprise for investors on Wall Street.
USA government bonds pulled back Thursday, lifting the yield on the 10-year Treasury note from its lowest level of the year, amid continued fallout from Wednesday's Federal Reserve meeting.
However a low unemployment rate upheld the bank's decision, with Federal Reserve Chair Janet Yellen saying: "Our decision ... reflects the progress the economy has made and is expected to make".
The Fed has announced that at some point this year it is likely to begin the process of gradually reducing its massive holdings of USA treasuries and mortgage backed securities, now worth $4.5 trillion.
The central bank also confirmed that later this year it would begin to implement a plan to reduce the size of its investment holdings, which were built up to record levels during the financial crisis to help support the economy, especially once interest rates reached zero.
"The economy is doing well, is showing resilience", Yellen said in her quarterly press conference.
The Fed's decision to raise rates, announced in a statement after its latest policy meeting, was approved 8-1, with Neel Kashkari, head of the Fed's Minneapolis regional bank, dissenting in favour of holding rates unchanged.
"The balance sheet plan seems more aggressive than previously thought", said James Sweeney, chief economist at Credit Suisse, one of the 23 firms that do business directly with the Federal Reserve.
Though the economy is growing only sluggishly and though inflation remains chronically below the Fed's 2 per cent target, it foresees improvement in both measures over time.
The average 30-year fixed mortgage had a rate of 4.02% on Weds., June 14 - the lowest since November 16, 2016 - and an average of 0.24 discount and origination points.
A retreat in inflation over the past two months has caused jitters among some Fed officials who fear that the shortfall, if sustained, could alter the pace of future rate hikes. Fed policymakers now expect the rate to be at 4.3 percent by the end of the year, down from a March forecast of 4.5 percent.
Added to another cautious recovery for sterling, that left the dollar index 0.04 percent weaker on the day at 96.936.