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Fed seen raising key rate 0.25%

Gradual increases likely to continue

WASHINGTON -- With a fall in oil prices easing inflation concerns, the Federal Reserve is expected to continue its easy-does-it approach to raising interest rates, boosting a key rate by a moderate quarter-point at its final meeting of the year today.

Many analysts believe this pattern of gradual quarter-point rate increases will continue well into the new year. Solid economic growth and an absence of inflation pressures mean Federal Reserve chairman Alan Greenspan and his colleagues can take their time in moving away from exceptionally low interest rates.

"The essential picture the Fed sees is a well-balanced and sustainable economic expansion. It has the leeway to continue its measured steps," said economist David Jones, the author of four books on the Greenspan Fed.

The federal funds rate, the interest that banks charge on overnight loans, is now at 2 percent, up from a 46-year low of 1 percent, where it stood before the Fed began raising rates June 30.

Short-term consumer rates have been heading higher at the same gradual pace. Banks' prime lending rate, the benchmark for millions of consumer loans, is now at 5 percent, up from a 46-year low of 4 percent before the Fed began raising rates.

Even with a rate increase today, the funds rate and the consumer rates tied to it will still be at historically low levels. Fed officials have said they are trying to gradually raise the funds rate to a "neutral" level where it is neither promoting stronger economic growth nor depressing growth.

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