Washington ? The Federal Reserve, still concerned about inflation, raised a key interest rate on Tuesday to the highest level in more than four years and signaled more increases were likely.

The Fed announced it was pushing its target for the federal funds rate, the interest that banks charge each other, to 4 percent from 3.75 percent, where it had been since the Fed’s last interest-rate meeting on Sept. 20.

It marked the 12th consecutive quarter-point increase since the Fed began gradually raising rates in June 2004 to make sure that a growing economy did not generate higher inflation.

Higher interest rates fight inflation by slowing economic activity. The higher rates dampen consumer demand for such items as autos and homes and raise the cost of borrowing for businesses.

In a brief statement explaining Tuesday’s action, the Fed retained language it had been using, which said it believed future interest rates can occur “at a pace that is likely to be measured.” That phrase is seen as a signal that the Fed plans to keep raising rates at a gradual pace of quarter-point moves at coming meetings.

The Fed rate increase was quickly followed by an increase in commercial banks’ prime lending rate, led by Cleveland-based KeyCorp. The prime was raised by a quarter point to 7 percent, the highest level for this benchmark for consumer and business borrowing, since June 2001.

Many analysts believe the Fed will keep raising interest rates at its final meeting of this year on Dec. 13 and at its first meeting of 2006, on Jan. 31, which will be Federal Reserve Chairman Alan Greenspan’s final meeting.