With inflation at its lowest level in 33 years and world financial markets uneasy about possible year-end computer glitches, Federal Reserve policymakers appear likely to leave interest rates unchanged when they meet early next month.

Fed officials, acting to preempt a possible increase in inflation, raised their target for overnight interest rates by a quarter-percentage point at both of their last two meetings, to its current level of 5.25 percent. After the second of those moves on Aug. 24, the policymakers signaled strongly that they didn't expect to raise rates again soon unless economic developments forced their hand--and so far nothing of that nature has emerged.

Meanwhile, many participants in the financial markets are worried about possible "Y2K" disruptions that could occur around the world on Jan. 1 when computers' internal clocks tick over from "99" to "00." Some older computers that haven't been modified may interpret the year as 1900 instead of 2000, and the systems they control could fail.

Many firms have already arranged to borrow large amounts of money and are planning other precautionary actions that are putting strains on some financial markets. Under these circumstances, Fed officials would prefer to do nothing that might add to the strain, such as raising rates between now and the end of the year. They stress, however, that they would do so if necessary.

After their August meeting, Fed Chairman Alan Greenspan and the other members of the policymaking group, the Federal Open Market Committee, said in a statement that their two recent rate increases, coupled with rising long-term rates, "should markedly diminish the risk of rising inflation going forward." In addition, they said the FOMC was not leaning toward raising or cutting rates "over the near term."

Fed governor Laurence W. Meyer said in a speech last week that that sort of announcement "indicates little prospect that a near-term move will be required if the economic outlook evolves roughly as expected."

Since last month's meeting, a number of Fed officials have indicated, both publicly and privately, that they are comfortable in such a neutral position. Most of the group would welcome a modest slowing of economic growth, because that would diminish potential inflationary pressures. Although there are only scattered signs of such a shift, recent reports on inflation and labor costs indicate the policymakers can safely wait for more information about the economy's course.

Higher interest rates on home mortgages are pointing to some slowing in what has been a red hot market for both new and existing homes. Meanwhile, consumer spending appears to be increasing more slowly, even though strong sales of new cars and light trucks are keeping retail sales moving upward rapidly. But Fed officials expect vehicle sales to top out and probably decline soon.

Consumer spending could cool, too, in their opinion, if the stock market continues to move sideways, as it has since April. Big gains in stock prices in recent years have helped fuel spending by increasing American household wealth, many officials believe.

At the same time, the "core" consumer price index, which excludes prices of volatile food and energy items, rose only 0.1 percent last month and was up only 1.9 percent compared to August 1998, the lowest 12-month change since April 1966.

"News of the lowest rate of core inflation for 33 years makes it harder for the Fed to act in October," said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, N.Y. "In the absence of obvious inflationary pressure, and since the two rate hikes so far have not gone down well on [Capitol] Hill, Mr. Greenspan may decide that discretion is the better part of valor at this stage. . . . Rates are likely to remain on hold."

Such a decision by the FOMC on Oct. 5 wouldn't mean the policymakers are really comfortable about the economic outlook, because they continue to be concerned about labor markets. The unemployment rate is 4.2 percent, a level that in past decades almost always caused inflation to accelerate because employers were willing to grant large wage increases to attract scarce workers.

That hasn't happened during this economic expansion, partly because rising labor costs have been offset significantly by a rapid increase in productivity growth. The speedup in productivity growth, Greenspan and many other analysts believe, has been the result of intensive business investment in advanced technology, particularly in the area of computers.

But the productivity growth surge came largely as a surprise and, as Meyer said in his speech, its acceleration means that "monetary policy never should target a specific rate of growth" for the economy. Fast economic growth may not be a problem because productivity gains may allow the output of goods and services to rise rapidly without putting more pressure on either the labor market or the production capacity of the economy.

Instead, Meyer said, policymakers should focus on inflation and factors that affect it, such as labor-market tightness and the amount of spare production capacity.

"We're in an environment where reasonable people can disagree about whether or not there is currently [inflation-causing] excess demand in the economy," Meyer said. That uncertainty, he added, should "diminish the aggressiveness" with which the Fed responds to signs that the economy may be overheating.