Fed Indicates It Will Soon Stop Raising Rates

By EDMUND L. ANDREWS at New York Times

WASHINGTON, Jan. 3 - The Federal Reserve set the stage today for ending its 18-month campaign of raising interest rates, closing out a major chapter in its monetary policy just a few weeks before Alan Greenspan retires as the Fed's chairman.

According to minutes released today from the Fed's policy meeting in December, officials agreed that they would have to push short-term rates only a little bit higher before stopping.

Policymakers agreed that monetary policy was no longer "accommodative," given that they had raised the benchmark federal funds rate on overnight bank loans to 4.25 percent today from 1 percent in June 2004.

And while officials were careful to say they were not quite finished, they explicitly indicated that they were close.

"Given the information now in hand, the number of additional firming steps required probably would not be large," the Fed's minutes said, ascribing that view to "most members" of the policy-setting Federal Open Market Committee.

The summary of last month's deliberations provides a wealth of new insights into the central bank's thinking as it prepares for its transition from Mr. Greenspan to Ben S. Bernanke, President Bush's nominee as the next Fed chairman.

The meeting minutes confirmed that Fed officials became slightly less worried about inflationary pressures, even though they expected high energy prices to push overall inflation somewhat higher for awhile.

"Participants indicated that their concerns about near-term inflation pressures had eased somewhat," the minutes said. Policymakers said prices were being held in check by competition from foreign producers.

They also noted that wages and other labor costs climbed only moderately, despite strong economic growth. And they drew comfort from the fact that last year's spike in oil prices had only a "muted" impact on overall consumer prices.

But Fed officials also hinted that they might be entering a new period of uncertainty and perhaps disagreement.

The uncertainties are both about the potential course of the economy as well as about the best way for the Fed to communicate its intentions now that interest rates are more in line with historical patterns.

"Views differed on how much further tightening would be required," according to the minutes. "Members thought the policy outlook was becoming considerably less certain and that policy decisions going forward would depend to an increased extent on the implications of incoming economic data."

Mr. Greenspan, who is set to retire on Jan. 31 after 18 years as chairman of the Federal Reserve, has long warned that the Fed would not always tip its hand on future policy as it has in the past two years.

But Mr. Bernanke, a former Fed governor who is expected to win easy approval in the Senate as the next Fed chairman, has argued for years that the central bank needs to be more open and "transparent" in communicating policy to the public.

Both Mr. Bernanke and Mr. Greenspan have been careful to couch any advance guidance from the Fed with the caution that policy decisions would always depend on patterns of new economic data.

But most analysts agree that the last two years have been unusually predictable. One major reason was that inflation has remained low, allowing the Fed to adjust policy gradually.

The other reason was that the Fed slashed interest rates to historic lows from 2001 through 2004 in order to support a stalling economy, and virtually all policymakers agreed that they had to push rates back up to more normal levels in order to prevent a new outbreak of inflation.

But with the federal funds rate now up to 4.25 percent, four times its level of just 18 months ago, the distinction between an "easy" and "tight" monetary policy is no longer clear.