updated 7/21/2005 2:46:46 PM ET 2005-07-21T18:46:46

Even after a yearlong rate-raising campaign, Federal Reserve policymakers at their meeting in late June said short-term rates were still too low and needed to move higher to keep inflation at bay.

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"Additional tightening would probably be necessary but views differed on the amount of tightening that would likely be required to keep inflation contained," according to minutes released Thursday of the Fed's most recent meeting, held June 29-30.

Rising energy prices and a possible pickup in labor costs threatened to fan inflation, the minutes said.

At the June meeting, the Fed boosted its key short-term interest, called the federal funds rate, by one-quarter percentage point to 3.25 percent. It marked the ninth increase of that size since the Fed embarked on its campaign to tighten credit in June 2004.

Before that series of rate increases started, the funds rate stood at a 46-year low of 1 percent. The funds rate is the interest that banks charge each other on overnight loans and is the Fed's primary tool for influencing economic activity.

Filling Greenspan's shoesThe insights revealed by the Fed minutes were consistent with the message that Federal Reserve Chairman Alan Greenspan delivered to Capitol Hill on Wednesday and again on Thursday. That is, interest rates will keep going up in an effort to make sure inflation and the economy remain on an even keel.

Economists expect another quarter-point increase to come at the Fed's next meeting, Aug. 9. Some analysts believe the funds rate could climb as high as 4.25 percent by the end of this year.

Although policymakers expressed hope that inflation could be kept under control, they made clear they must be vigilant.

"The committee needed to be particularly alert to signs of a further increase in inflation," the minutes said. "Such an increase could be particularly problematic because it might impart upward momentum to inflation expectations that would be costly to reverse."

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