Federal Reserve policymakers, concerned that the U.S. economy is still growing too fast for inflation to stay low, raised a key interest rate yesterday by a quarter of a percentage point but also signaled that they are not likely to raise rates again this year.

Investors and financial analysts had anticipated the Fed's decision to raise the federal funds rate, which financial institutions charge one another on overnight loans, to 5.25 percent, following a similar quarter-point increase at the end of June. But many observers were unsure before the meeting whether Fed officials would be likely to raise rates a third time this year at their next meeting, in October. The wording of the announcement by the policymaking group, the Federal Open Market Committee, made it clear they are not.

"Today's increase . . . together with the policy action in June and the firming of conditions more generally in U.S. financial markets over recent months, should markedly diminish the risk of rising inflation going forward," the announcement said. It added that the policy directive adopted by the FOMC was "symmetrical," which means the group made no presumption about whether its next policy move would be a rate increase or a rate cut.

Stocks, which had rallied strongly the day before in advance of the Fed action, did not react sharply to the news. Bond prices rose generally. [Details on Page E1.]

Yesterday's rate increase, like the one in June, will mean higher borrowing costs for most consumers and businesses. By the end of the day, several major U.S. banks had announced increases in their prime lending rates to 8.25 percent from 8 percent. With the rates on many credit-card balances, home-equity loans and some personal loans tied directly to the prime -- as are the rates on most small-business bank loans -- monthly payments will be going up for millions of borrowers.

Rates on fixed-rate home mortgages aren't affected quite so directly by the Fed action. But partly because of expectations that short-term rates were headed higher, mortgage rates began rising some time ago and are now above 8 percent on many 30-year loans.

Unless there are some economic surprises in store, however, the Fed's announcement means it is not likely to raise rates for the rest of the year.

"I read it as a `this is it for a while' kind of statement," said economist L. Douglas Lee, of Washington Analysis Corp.

Nevertheless, Lee and other analysts cautioned that developments such as clear signs of accelerating inflation or a significant decline in the nation's already-low unemployment rate could force the Fed to raise rates in response. Lee, for instance, is particularly concerned that a number of factors, including further increases in the price of energy and the drought that is hurting some U.S. crops, could push inflation noticeably higher in the next few months.

In contrast, Bruce Steinberg, chief economist at Merrill Lynch & Co. in New York, thinks labor markets are a greater question mark.

What the Fed does will depend on "forthcoming data, especially next week's employment report [for August]," Steinberg said. For the Fed to keep rates on hold, he said, two conditions must be met: "First, inflation must remain contained. That condition should be fairly easy to meet. Second, and more problematic, the labor market cannot tighten much further."

A few analysts, such as Ray Stone, of Stone & McCarthy Research Associates, a financial markets research firm, believe the Fed will raise rates again in October despite the neutral-sounding announcement.

Stone pointed out that the Fed cut rates by three-quarters of a percentage point last fall when world financial markets were in turmoil after a default by the Russian government on part of its debt. With yesterday's move, rates are still lower than they were before the turmoil, though the Fed noted that financial markets are "functioning more normally" than in the crisis period.

"We feel they [Fed policymakers] will go again in October," Stone said. "Unless things materially slow, they are going to go."

Even before the June rate increase, Fed Chairman Alan Greenspan and other policymakers acknowledged that there were few if any signs that inflation was getting worse. But with spending by both business and consumers increasing rapidly, the officials feared that eventually the combination of tight labor markets and strong economic growth would cause inflation to accelerate.

But a number of Fed officials also believe growth is slowing enough that, with the further restraint from somewhat higher interest rates, it will gradually drop to a pace consistent with stable inflation.

Because of that modest slowdown, and because inflation is now under control -- consumer prices were up 2.1 percent over the past 12 months and rose at an annual rate of only 1.2 percent in the May-July period -- Fed policymakers adopted a wait-and-see stance regarding future moves.

In a related action, the Federal Reserve Board increased the Fed's discount rate, the rate financial institutions pay when they borrow money directly from their district Federal Reserve bank, to 4.75 percent from 4.5 percent. In the past, the Fed has sometimes used a change in the discount rate to emphasize the direction in which monetary policy was headed.

Given the neutral language of the FOMC directive, however, analysts generally agreed that yesterday's discount-rate increase wasn't so much a signal as a matter of keeping the spread between the discount rate and the federal funds rate around the usual half a percentage point.

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