End to Tightening Near, Minutes Show, but How Near Is Unclear

Federal Reserve policymakers provided more evidence Tuesday that they were nearing the end of their campaign to lift U.S. interest rates, as the minutes of their last meeting said the number of additional increases needed “probably would not be large.”

The meeting summary, released after the usual three-week delay, elaborated on the central bank’s collective mind-set at the Dec. 13 meeting, which saw the Fed significantly alter its post-meeting statement for the first time since it began raising short-term interest rates in mid-2004.

The shift in the post-meeting statement had indicated that the Fed no longer believed that rates were too low. The statement also tempered prospects for future increases by saying that “some further measured policy firming is likely to be needed,” depending on economic data.

In the minutes, the Fed described the debate over the change in its post-meeting statement language this way: “Although future action would depend on the incoming data, this characterization of the outlook for policy was seen by most members as indicating that, given the information now in hand, the number of additional firming steps required probably would not be large.”

Many economists said Tuesday that the minutes boosted their belief that the Fed would lift its key rate, now 4.25%, to no more than 4.5% or 4.75%. The next Fed meeting is Jan. 31. It will be the last presided over by Chairman Alan Greenspan. Ben S. Bernanke, President Bush’s chief economic advisor, would succeed Greenspan beginning Feb. 1 if confirmed by the Senate.

“It’s sufficient to say we’re awfully close to the end of the game,” said Richard DeKaser, chief economist at banking firm National City Corp. in Cleveland. “My own view is they’ve got another quarter point in them.”

Bruce Kasman, head of economic research at JPMorgan Securities Inc. in New York, said the Fed was “a little more dovish in its overall message from the minutes than we had expected. Their concern is actually a little less on the inflation side” than it had been in November.

The minutes said that policymakers on Dec. 13 “indicated that their concerns about near-term inflation pressures had eased somewhat” since their Nov. 1 meeting.

Fed members also were generally upbeat about the economy, the summary said.

As for how many more rate increases might be necessary, the minutes said that “would depend to an increased extent on the implications of incoming economic data for future growth and inflation” -- in other words, that they would take their cue from economic reports.

In financial futures trading on Tuesday, the odds of quarter-point rate increases both this month and at the following meeting, on March 28, fell to 52% from 60% on Dec. 30.