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Rising prices put pressure on Fed

WASHINGTON -- Americans, who have grown accustomed to nothing but good news on inflation, got a jolt last week when consumer prices jumped by the largest amount in nearly nine years, led by a sharp increase in gasoline prices.

That development will be on the table when Federal Reserve policy-makers meet today, but private economists believe it will take more than one bad number to prompt the central bank to start raising interest rates.

These analysts, however, said they expect the Fed to start raising interest rates later this year, probably at the policy-makers' August meeting, to slow the economy and keep inflation from becoming uncontrollable.

The countdown is really on for a future tightening move by the Fed, David Jones, chief economist at Aubrey G. Lanston & Co. in New York, said Monday. It is no longer a matter of whether they will tighten, but when.

The central bank last changed rates in the fall of 1998 when the federal funds rate, the interest that banks charge on overnight loans, was cut three times to help restore investor confidence and avert a worldwide recession. The funds rate has been at 4.75 percent since Nov. 17.

The rate cuts worked. U.S. markets have since returned to record levels, bolstered by low U.S. interest rates and continued strength in a U.S. economy enjoying its lowest jobless levels in three decades.

But since Friday's bad inflation report, Wall Street has grown nervous. Bond prices have fallen sharply on inflation fears while the Dow Jones industrial average fell a further 60 points Monday following a 194-point plunge on Friday.