updated 1/3/2006 2:49:40 PM ET 2006-01-03T19:49:40

Federal Reserve policy-makers differed last month on how much higher interest rates would need to rise to keep the economy and inflation on an even keel, but most believed the end of the nearly two-year rate-hike campaign probably wasn’t far off.

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Minutes of the Fed’s closed-door meeting on Dec. 13, released Tuesday, provided insight into the thinking of policy-makers who at that meeting made their most extensive changes to date in the wording of the central bank’s policy statement, which economists parse for clues about the possible course of future rate moves.

“Views differed on how much future tightening might be required,” the minutes said, explaining why changes were made to the Fed’s policy statement released after the December meeting.

One of the most important changes was that the Fed dropped language — contained in previous statements — that described interest rates as being too low, or accommodative. Economists viewed that as a sign that the Fed was winding down its rate-raising campaign.

Fed Chairman Alan Greenspan and his colleagues decided at the December meeting to boost rates for the 13th time since June 2004 to prevent inflation from flaring up. They noted that the economy was growing solidly and that the labor market had gotten stronger, forces that could lead to a pickup in inflation.

“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,” the minutes stated.

The Fed’s action in December left its key short-term rate, called the federal funds rate, at 4.25 percent, the highest in 4 ½ years. The funds rate is the interest that banks charge each other on overnight loans and is the Fed’s main tool to influence economic activity.

The rate increase was part of an 18-month process where the Fed was focused on lifting rates from extraordinary low levels to more normal ones. Before the Fed embarked on its rate-raising campaign in June 2004, the funds rate had been sliced to 1 percent, a 46-year low, in an effort to help the economy get back on its feet after the 2001 recession, terror attacks and an accounting scandal that rocked Wall Street.

Throughout the Fed’s rate-raising cycle, it had pledged in its policy statement to boost rates at a “measured” pace. Economists came to view that as one-quarter percentage point increments. The Fed’s 13 rate increases thus far have all been quarter-point hikes.

At the December meeting, some members thought that the word “measured” was no longer necessary, the minutes revealed. However, the Fed’s policy statement released at the time ended up keeping that word.

“Its retention for this meeting was seen as potentially useful to preclude a possible misinterpretation” by investors and financial markets that the Fed might need to act more aggressively in boosting rates, the minutes said.

Many economists predict the Fed will bump up rates again at their next meeting on Dec. 31. That’s the first meeting of 2006 and the last meeting for Greenspan who will retire that day after 18-plus years at the helm.

Some analysts believe another rate increase will come at the following meeting on March 28, which would mark the first one presided over by Ben Bernanke.

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