The US Federal Reserve was expected to hike interest rates by a quarter percentage point to 4.0 percent after it held its policy-setting meeting yesterday, and give no signal the campaign to tighten monetary policy is nearing an end. The Federal Open Market Committee (FOMC) will issue its interest rates decision at the end of the meeting, which will be the third from final gathering chaired by Alan Greenspan, who retires on January 31.

President George W. Bush on Monday named Ben Bernanke as the next Fed chairman, subject to confirmation by Congress. Economists see the transition as another good reason to expect the US central bank to remain on the inflation offensive.

?We expect the 12th consecutive increase in the target fed funds rate and really no change in the tactics deployed in recent meetings,? said Lynn Reaser, chief economist at Bank of America Capital Mana-gement in Boston.

<B>Energy and food costs stripped out</B>

The Fed?s statement accompanying the interest decision has stuck with a commitment to removing policy accommodation at a measured pace. Policy-makers have also said a considerable amount of accommodation has already been removed, indicating the Fed is at least thinking about halting the rate hike cycle at some point.

But the Fed has also done nothing to remove the market?s impression that it still thinks rates are too low, or at least below neutral ? a theoretical description of a setting for policy that neither stimulates nor hinders economic activity.

Fed policy-makers are purposely vague about what level they consider neutral, and say that it can alter over time. A change in the wording of the statement would be a clear hint of how much higher they see interest rates going, but that change was not expected yesterday.

?The big question at next Tuesday?s FOMC meeting is whether ?measured pace? disappears from the statement. Although this is possible, our best judgment is that the language stays, as the FOMC probably plans another hike on December 13,? Goldman Sachs told clients in a note. The remaining two FOMC meetings of the Greenspan era are on December 13 and January 31.

If there are tweaks to the statement, it will be on the unfolding economic outlook rather than a big signal on policy. ?The Fed is likely to acknowledge some dampening in growth from rising energy costs. But it will suggest the underlying economy is solid and although inflation has been in check recently, there are upside risks going forward,? said Reaser.

Fed policy-makers have also said they are committed to keeping inflation at bay amid soaring energy costs. Data on Friday showed underlying prices, which strip out energy and food costs, remain tame while the economy is pretty strong.

<B>Stay ahead of risks of inflation</B>

US gross domestic product growth increased to a 3.8 percent annual rate in the third quarter from 3.3 percent in the previous three months, data on Friday showed. But year-on-year core PCE, a measure of the inflation faced by shoppers, rose just 1.3 percent. That said, the Fed wants to stay ahead of potential risks to inflation so with growth solid, it will stick to its plan of increasing rates gradually. It will also be aware of investor concern ahead of the Bernanke succession, which Fed watchers think will make the US central bank even more determined to defend its anti-inflation credentials.

?Continuity is all but assured,? said Anthony Chan, senior economist at JP Morgan Asset Management. ?The Fed has worked hard to win credibility and Greenspan is not going to throw it away in the final few months of his term.?

Fed fund futures signal that investors expect the Fed to raise rates up in quarter point steps at all three remaining Greenspan meetings, lifting the funds rate to 4.50 percent. Futures markets price an almost 50 percent likelihood that Bernanke, if confirmed to the job by Congress, will raise rates to 4.75 percent when he chairs his first FOMC on March 28.