NEW YORK (CNN/Money) - Bond prices tumbled Tuesday after the Federal Reserve raised interest rates a quarter-point, as expected, and said that inflationary pressures were growing. The dollar rose.

The central bank announced its seventh consecutive rate increase at about 2:15 p.m. ET, and kept its pledge to raise short-term rates at a "measured" pace. But an accompanying statement said that while longer-term inflation expectations were "well contained, pressures on inflation have picked up in recent months and pricing power is more evident."

That spooked bond investors who are typically hyper-sensitive to any signs of inflation, which erodes the value of their investments.

The 10-year note lost 25/32 of a point, to 95-2/32, for a yield of 4.62 percent. The yield was 4.53 percent late Monday and about 4.47 percent just before the announcement.

The last time the 10-year yield was above 4.60 percent was July 2004, when it rose as high as 4.64 percent.

The 30-year bond sank 29/32 of a point, to 107-3/32, for a yield of 4.88 percent. The yield was 4.82 percent Monday. Bond prices and yields move in opposite directions.

Shorter-dated debt also fell, with the five-year note down 18/32 of a point to 98-21/32 yielding 4.29 percent. The two-year dropped 7/32 of a point to 99-5/32 to yield 3.82 percent.

Tuesday's increase to 2.75 percent marks the highest rate since late 2001, and the accompanying statement may indicate a slight change in Fed policy. "Instead of dropping 'measured,' they chose language that acknowledges the modest pick-up in inflation pressures," William Fitzgerald, head of fixed-income at Nuveen, told Reuters. "This may be a step toward getting rid of 'measured;' of being more aggressive without indicating a change in the plan."

Earlier in the day, bonds had gained a bit after wholesale price increases for February came in at 0.4 percent, roughly in line with Wall Street expectations and tempering inflation concerns.

The Fed's focus on inflation has traders worried that the consumer price index, due Wednesday, may rise more than expected. Forecasts, according to Reuters, are for a 0.2 percent rise in the core CPI, excluding food and energy.

In the currency market, the euro bought $1.3087 Tuesday, down from $1.3171 Monday. The dollar rose to ¥105.61 from ¥105.09 late Monday.

Higher rates makes U.S. securities more attractive to foreign investors, who must purchase the notes in U.S. currency.

The dollar has gained more than 2 percent against the euro and yen since the start of the year as investors bet that rising interest rates and higher yields on dollar assets might help offset worries about structural problems in the U.S. economy, including the nation's massive deficits.

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