Although the Federal Reserve is believed to be satisfied the economy is slowing and inflation is no immediate threat, many analysts expect price pressures will force it to raise interest rates by the end of the year.
The Federal Open Market Committee, the central bank's monetary policymaking body, was considering Tuesday whether higher short-term rates are needed to brake the economy and prevent it from firing inflation pressures.Most analysts predicted no change in interest rates. It was expected the Fed would make its intentions known by midafternoon.
"I think the Fed is satisfied that we're beginning to see some slowing in the third quarter after exuberant growth earlier in the year," said economist David Jones of Aubrey G. Lanston & Co., a New York securities dealer.
Fed Chairman Alan Greenspan told Congress last month that he and his colleagues expected the economy to moderate during the second half of the year from its sizzling pace last spring.
A Fed survey of regional business conditions prepared in late July for Tuesday's meeting found indications the economy was moderating, with little sign of inflation.
Analysts say data since then also suggested the expansion, now in its sixth year, indeed is slowing to perhaps just half the 4.2 percent annual rate of growth from April through June.
But in his congressional testimony, Greenspan warned that "recent favorable inflation developments . . . may be drawing to a close," causing the Fed to become "especially vigilant."
"I am confident that the Federal Open Market Committee would move to tighten . . . should the weight of incoming evidence persuasively suggest an oncoming intensification of inflation pres-sures," he said.
That evidence is not yet persuasive, but recent data have hinted at mounting pressures, particularly tight labor markets, leading some analysts to predict higher rates later in the year.
The FOMC last raised the federal funds rate in February 1995, to 6 percent from 5.5 percent. Then, beginning in July 1995 as the economy showed signs of stalling, it pushed the rate down to 5.25 percent in three moves, the last on Jan. 31.