The Federal Reserve on Tuesday boosted its benchmark short-term interest rate by a quarter percentage point to 4. 25 percent and sparked...

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The Federal Reserve on Tuesday boosted its benchmark short-term interest rate by a quarter percentage point to 4.25 percent and sparked hopes that it may be nearing an end to its 18-month credit-tightening program.

The central bank, in the statement accompanying its 13th consecutive rate increase, no longer described its policies as “accommodation.” That word has served as Fed-speak for interest rates being low enough to encourage economic growth.

Removal of the description suggests the Fed is closer to its target of a “neutral” rate level, one that neither stimulates or stunts growth, analysts said.

Investors on Wall Street generally cheered the news, interpreting a possible end to rate increases as bullish for stock prices. Major indexes rallied modestly, with the Dow Jones industrial average gaining 55.95 to close at 10,823.72.

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But the Fed also said “some further measured policy firming is likely to be needed,” suggesting further increases are in store in its battle to subdue inflation.

“The end is in sight, it’s just that we don’t know what that number is, and they [members of the Fed’s Open Market Committee] don’t know that either,” said Allen Sinai, chief global economist at Decision Economics in Boston. The Fed’s most recent statement suggests the central bank may no longer raise rates in predictable, consecutive quarter-point increments, but it will still do what it takes to keep inflation at bay, he said.

“It’s just not as black and white as before,” Sinai said.

Nonetheless, some analysts immediately reaffirmed forecasts that the Fed’s benchmark rate will hit 4.75 percent or 5 percent next year, up from 1 percent in June 2004.

The increase in the Fed’s benchmark federal-funds rate, which banks charge each other for overnight loans, will lead to higher borrowing costs for consumers and businesses. Many banks Tuesday raised their prime lending rates a quarter point to 7.25 percent, which will in turn boost charges on some home-equity loans, variable-rate credit cards and other borrowings whose rates are pegged to the prime.

However, rates on certificates of deposit and other interest-paying vehicles also will rise, giving a boost to savers.

The Fed also said “possible increases in resource utilization as well as elevated energy prices have the potential to add to inflation pressures.”

The use of the phrase “increases in resource utilization” — Fed-speak for a declining unemployment rate, which stands near a four-year low at 5 percent — suggests the Fed is concerned that a tightening labor market could push up wage costs, said Ian Shepherdson, chief U.S. economist for High Frequency Economics in Valhalla, N.Y.

“It signals that the labor market has now moved again to center-stage in the Fed’s analysis and policymaking process,” Shepherdson said.

While higher wages are welcome for workers, Fed policymakers fear that rising pay scales could ignite inflationary expectations among businesses, making it easier for them to pass along higher costs to customers. Such expectations could be self-fulfilling, as was the case in the inflationary 1970s.

However, at least for now, the economy is performing well with inflation under control, the Fed suggested.

“Despite elevated energy prices and hurricane-related disruptions, the expansion in economic activity appears solid. Core inflation {mdash} excluding food and energy {mdash} has stayed relatively low in recent months and longer-term inflation expectations remain contained,” the central bank said.

The Fed statement was consistent with recent data showing the economy growing strongly amid robust business and consumer spending and a pickup in hiring after hurricanes Katrina and Rita.

Recent economic data also suggest that inflation remains in check, thanks in part to falling energy prices and robust gains in worker productivity. Also, the nation’s five-year boom in housing prices has been slowing, which could reduce pressures on the Fed to try to ramp up mortgage rates.

Analysts, however, suggested the economy and interest rates are at a crossroads where the risks of a Fed misstep are greater.

“The central bank runs the risk of raising the interest rate too fast. Historically, the central bank had overreacted to inflationary pressures, contributing to economic recessions,” said Sung Won Sohn, an economist and chief executive of Los Angeles-based Hanmi Bank.

On the other hand, Sohn said, if the Fed stops too soon, inflation expectations could be heightened. That could push up mortgage rates and damage the housing market.

The next Fed policymaking meeting is Jan. 31, the last official gathering for retiring Fed Chairman Alan Greenspan. Analysts expect further changes in the Fed’s policy statement then, possibly to give a clean slate for incoming chairman Ben Bernanke.

Many analysts expect Bernanke to raise rates at his first policy-setting meeting to prove his inflation-fighting mettle. Such an increase March 28 would take the federal-funds rate to 4.75 percent.