Offering no letup in its fight against inflation, the Federal Reserve yesterday raised its benchmark short-term rate by a quarter-point...

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Offering no letup in its fight against inflation, the Federal Reserve yesterday raised its benchmark short-term rate by a quarter-point for the 10th consecutive time and indicated that more increases would be coming.

The central bank’s expected boost in its federal funds target rate, to a four-year high of 3.5 percent, renewed a debate about whether the Fed might become irrationally exuberant in its anti-inflation crusade.

Some investors and analysts contend that the central bank is overestimating the threat of inflation and could ultimately raise rates too high, slowing the economy unnecessarily. The Fed’s last cycle of credit tightening in 2000 led to a recession the year after, they say.

But the Fed yesterday indicated that it would have none of that soft-on-inflation talk. In its statement yesterday accompanying the rate announcement, the central bank’s Open Market Committee repeated that it would continue to raise rates at a “measured” pace — Fed-speak for more quarter-point boosts.

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The Fed also acknowledged what recent economic data have made clear: Growth has gained momentum in recent months, without a significant pickup in inflation.

“Aggregate spending, despite high energy prices, appears to have strengthened since last winter,” the Fed statement said. It added that although “core inflation has been relatively low in recent months … pressures on inflation have stayed elevated.”

Analysts viewed the statement as further confirmation that the Fed wouldn’t quit tightening credit anytime soon. Many are now betting that the Fed will push its short-term target rate as high as 5 percent. Two months ago, the smart money thought 4 percent might be tops. The rate was 1 percent in June 2004.

“It is very hard to draw any conclusion other than that rates have some way further to rise,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, N.Y.

Major banks raised their prime lending rates by a quarter-point to 6.5 percent. That will in turn elevate costs for variable-rate credit cards and some other consumer and business loans.

Yields on long-term bonds — which have risen sharply in the last month on expectations of faster economic growth — fell slightly yesterday, as traders were encouraged by the Fed’s comments.

Clearly, some investors and analysts wish the Fed would take its rate-raising ball and go home. Global competition is making it harder for companies to raise prices, they say. The economy is less dependent on energy, and better able to absorb higher gasoline and natural gas prices. Slack remains in the labor market, with many discouraged workers still out of the work force.

“The probability of the Fed ‘overshooting’ and increasing interest rates more than necessary … seems to be growing and is beginning to spook investors,” Bob Doll, chief investment officer at Merrill Lynch Investment Managers in New York, said Monday. Rising interest rates, higher oil prices and a reviving dollar will soon begin to slow the economy, he said. So if the Fed raises above 4 percent, “we’d begin to get a little concerned,” Doll said yesterday.

In the latest evidence on inflation, the Labor Department reported yesterday that unit labor costs — what employers pay for workers to produce a given amount of goods and services — rose at an annual rate of 1.3 percent in the second quarter. That was down from 3.6 percent in the first quarter.

However, over the last four quarters, unit labor costs have risen 4.3 percent — the biggest increase since the year preceding the third quarter of 2000. And growth in worker productivity — a key factor in subduing inflation — is slowing. Worker output per hour grew at a 2.2 percent annual pace in the second quarter, down from a 3.2 percent first-quarter gain, the Labor Department said.

That large an annual rise amid slowing productivity, was cited as evidence justifying further Fed credit tightening.